The whole problem would be fixed if lenders would allow for buyers to actually roll their true costs of buying into the loan. The lending process is as much a part of the problem as anything else. It disadvantages the buyer, and makes it impossible for buyers to afford their realtor representation. But, magically, the lender fees, including a loan initiation fee, is somehow acceptable to roll into the loan.
@Brandon, the seller is paying the listing broker. They pay 5-6% knowing that the listing broker will split with buyer agent. Ultimately, the seller pays both listing agent and buyer agent.
The only reason commissions have remained around 5-6% is because it gets financed into the mortgage through the purchase price of the home. If the agent commissions were completely separated, the commissions would fall dramatically because both sellers/buyers would be more focused on saving money and no matter how good you or any other agent thinks they are, 90% of buyers are not going to write a check for 3%.
We see this at play on the mortgage side. Borrowers will nitpick mortgage fees/interest rates to death and make decisions literally over $25/mo but will completely ignore the agent commissions. They SEE the mortgage payment and in their minds, lower is better. PERIOD. However, they don’t really see the agent commissions and thus have no incentive to truly price shop which is why commissions have remained relatively stable regardless of the price of the home.
In Utah we are licensed as agents and brokers. While “upgrading” my license to a Broker in 2001 I remember arguing with the instructor who encouraged me to forgo listings that offered less than three percent—”Its just business,” she exclaimed. My argument was along the lines of Nash’s Equilibrium Theory (NET). Recirical Altruism is real. If I help a buyer get a house, regardless of the compensation, that they love, I will get referrals that exceed any “discount” I incur.
The instructor was an old school agent and its these personalities that support the lawsuit that will eventually be settled. It will be settled with Zillow and its cohorts getting unfettered access to data which will cause major confusion for the consumer. NAR is led by these same old-school personalities! Wake up REALTORS demand a new leadership that has fortune 500 successes; send an email today.
In Utah we are licensed as agents and brokers. While “upgrading” my license to a Broker in 2001 I remember arguing with the instructor who encouraged me to forgo listings that offered less than three percent—”Its just business,” she exclaimed. My argument was along the lines of Nash’s Equilibrium Theory (NET). Reciprocal Altruism is real. If I help a buyer get a house, regardless of the compensation, that they love, I will get referrals that will unequivocally exceed any “discount” I incur.
They system that was created to allow buyers to buy and ‘finance’ the commissions, ‘finance’ the closing costs, ‘pay a higher rate’ to lower the loan fee’s. because it isn’t the price, the rate, the commission, the payment, the location, the size of the home… it is ALL about what the buyer wants to try and buy! They system has been set for AGENTS to understand the resources and options and apply those to the benefit of their client. It isn’t the knowledge that is important, it IS the ethically applying the knowledge to get the buyer what they wanted, at a payment, cash to close and condition that they can live with.
Now, some legal firm points out 1 block and says ‘unfair’… see that’s knowledge, but it isn’t wisdom, it may be true if taken out of context of the entire process and how it has evolved from the day of “Cash only’ offers. If someone doesn’t like the current system, they DON’T have to use it. Just pay cash!
In reply to Russ, I agree. Additionally, consumer(s) have been duped by various appraisal districts into paying higher taxes “based on valuations” based on “sale prices” – which include all costs of closing, which have been cleverly/marketed/separated into unique buyer and seller columns/expenses. Truthfully, the buyer generally pays all expenses (buyer and seller direct and-or indirect costs of closing, which include tax prorations . . .) inside a pretty sales price which conveniently is high enough to cover all expenses. If NO cost of closing could be within a sales price (thereby not indirectly financing these costs), I believe most fees would be drastically lower. I realize this would be a paradigm shift, which might harm the real estate industry.
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