The Sacred Six Percent Commission Under Attack
The Times examines the question of how long six percent can continue to be the standard real estate brokerage fee in an era when the democratizing effects of the Internet is enabling buyers to do a lot more of their own leg-work and techno-savvy start-ups are willing to undercut the old horses. We’re sure plenty…
The Times examines the question of how long six percent can continue to be the standard real estate brokerage fee in an era when the democratizing effects of the Internet is enabling buyers to do a lot more of their own leg-work and techno-savvy start-ups are willing to undercut the old horses. We’re sure plenty of you who have sold in the last couple of years have stories of agents who did agree to cut the commission to five, or even four, percent. Of course, given what the market has done, a one or two percentage point cut still results in absolute fees way above where they were a decade ago. The authors of Freakonomics found that commissions do not align the interests of agents and their customers. Why? On the margin, the agent doesn’t have much incentive to get a higher price; instead, he’d much rather get the deal done and move on to the next one. The financial advisory business began migrating to the salary model a few years ago for this very reason. Think that could ever happen in real estate?
Last Stand of the Six Percenters [NY Times]
Illustration by Scott Pollack
if the sellers got a better deal too, then it’s great. I’ve sold and bought FSBO before and both times thought both seller and buyer saved their end of the commission.
“As a buyer I definitely believe I got a better deal on my place than I would have if a big agency was representing the seller.”
Is this what sellers want to hear?
As a first-time buyer I bought a FSBO apartment in a small Brooklyn co-op about 3 years ago — I didn’t work with a real estate agent, and neither did the seller. There were some special circumstances that made this FSBO situation work particularly well for this deal — it is a decidedly inexpensive apartment, a small and pretty informal co-op, and we all definitely did a lot of legwork to push the deal through (though I’m not sure we did that much more than other folks I know who DID work with agents).
As a buyer I definitely believe I got a better deal on my place than I would have if a big agency was representing the seller. However, I also did a lot of work on the apartment once I moved in — even cleaning the place myself after the previous owner left a bunch of her stuff behind! Even, now, when apartments in my building have almost doubled in price, I suspect my modest apartment wouldn’t be worth many agents’ time. But if I ever change roles and become a seller, I would consider using an agent to help me market and sell my place — but knowing what I do now, maybe I’d try to whittle their commission down to 5%.
The Times trots this article out at least once or twice a year. Buyers don’t pay a commission in NYC, so this article doesn’t really apply here. Some sellers will probably be willing to pay more than 6% as properties sit on the market longer. Paying two mortgages can add up…
I tried to sell my townhouse FSBO, offering a 2.5% buyers broker commission. We got a few calls, but that’s it. After two months had gone by with zero offers, we upped the commission to 5%. Then the phones started ringing and we got the place sold.
I’d suggest a similar approach. It’s difficult to gauge interest in your property without listing it in the NY Times and holding a couple open houses.
For me, it turned out that the buyer’s agent was very professional and a great intermediary between myself and the buyer.
Does she really deserve the huge amount of money she made for ten hours work? To me she does. That house would still be sitting on the market and I’d still be sweating bullets if she hadn’t brought in the buyer.
Not everybody scours the internet for deals like you folks do, and in a slowing market a good broker may be the only way to get anywhere near your asking price.
We recently brought an apartment without using a buyer’s broker, so the seller’s broker get to keep all 6%. On a $700k apartment that’s $42k. For doing what? Holding open houses a few time? Acting hyterical whenever she was afraid the deal might fell through?
By comparison, our lawyer did lots of work for us negotiating the contract, dealing with title company, mortgage broker, etc. He only gets a few thousand dollars out of the deal.
Brokers are overpaid. FSBO is the way to go!
they are worse than car salesman, they should go back to foot locker and sell shoes
Dear Anon:
I did not sign a confidentiality agreement. I am not self-centered. I negotiated a great deal and the broker asked me not to tell anyone. If you’re selling an apartment, using me as a guideline is lazy and stupid. If you want a favorable commission, negotiate your own deal. Maybe your anger stems from the fact that you’re clueless in matters like this and have been consistently kicking yourself in the ass for being screwed by a real estate broker. If this is the case, please continue to buy and sell real estate as morons like you make people like me a greater profit. And finally, I suggest psychotherapy for your anger and jealousy issues.
RentingForNow — out of respect for the broker????? bull$hit. If your story is true, the reason you are not disclosing the broker is (a) you are subject to a confidentiality clause or (b) you are one of those people who are so self-centered that you wouldn’t feel good if others got the same deal that you got. It’s exactly that kind of behaviour that keeps prices at 6%. If you said, I sold house X with Y broker for 3%, the next guy would have a starting point for negotiation, and soon enough the 6% would become 3%. Part of the reason for broker upper hand in the fee negotiation (or lack thereof) is the lack of information.