This seems like a perfect example of a cartel-esque market that could be dominated by fee-based technology-using upstarts.
Now the case for selling agents making a percentage-based commission is stronger, assuming they actually actively work to sell the home (holding open houses and active promotion).
But when it comes to buyer's agents, the whole idea of paying them based on the sale value is a massive conflict of interest. Why would a buyer's agent be a good faith representative in negotiations if it was in their personal interest that the sale price be higher?
The only reason this has worked for so long is that Realtors collude on the commission (it's 6% everywhere... there is no price competition). They also actively try to control entrance into the profession to make sure everyone tows the line.
To me, a fee-based buying agent makes much more sense. Barring that, at least pay them as a percentage of the difference between the asking and final price. That way if you get the house for $10k under the asking price, they can have 35% of that, rather than 3% of the total value of the home.
Why would a buyer's agent be a good faith representative in negotiations if it was in their personal interest that the sale price be higher?
This belief follows from the mistaken notion that if there are two brokers involved in the transaction where one has listed the property and the other is assisting a buyer in finding a property, then one of them has a fiduciary responsibility to the buyer. This is almost never the case in conventional real estate transactions - all the brokers involved work for the seller. The listing broker receives a fee for having listed the property. If a non-listing broker is involved he/she receives a fee for locating the buyer. As you point out, the nature of this relationship should be clear when you notice that all the brokers' financial interests are aligned with the seller's.
It is possible for a buyer to hire an agent to act on his behalf and there would be no reason for this agent to be paid a percentage of the sales price. Very few people do this - either because they don't think it is worth it or don't understand that the broker who showed them the house isn't working for them.
"This belief follows from the mistaken notion that if there are two brokers involved in the transaction where one has listed the property and the other is assisting a buyer in finding a property, then one of them has a fiduciary responsibility to the buyer. This is almost never the case in conventional real estate transactions - all the brokers involved work for the seller."
This is only true in subagency situations, which are going away in most MLS regions in favor of designated agency. In designated agency states (many, if not most) and broker-buyer agreements, the licensee representing the buyer does indeed have a fiduciary responsibility to the buyer.
"Why would a buyer's agent be a good faith representative in negotiations if it was in their personal interest that the sale price be higher?"
Because, for the good ones, their professional reputation and license are on the line. You won't stay in business long if you get a reputation for screwing your customers over. Look for an agent with an ABR designation if you are really worried about this.
"it's 6% everywhere... there is no price competition"
Wrong. There is no rule that says 6% is mandatory. 5.5% and 5% are very common now. Some homes take a lot of work to sell and find.
"They also actively try to control entrance into the profession to make sure everyone tows the line."
Also wrong. There are a plethora of agents in the profession. That there are licensing exams to ensure agents have a requisite level of knowledge about the law, contracts, financing, fair housing laws, etc. and continuing education requirements does not mean they are controlling the entrance into the profession anymore than doctors, lawyers, or accountants do. It means they have serious professional standards because you are screwing around with property, titles, and people's homes.
Agents do a lot more than simply list things in MLS and the newspaper. There is a lot of networking behind the scenes that can sell a house quick that FSBO and Redfin are not keyed into. Once you get to negotiations and the closing process, an agent really earns their money by coordinating the necessary inspections, title/legal functions, financing functions, etc. It is naive and risky to think that most of these things can be automated simply.
Whatever the difference is between Redfin buyers and non Redfin buyers it obviously might be statisically relevant.
I'd like to see the comparison for purchases where the users considered using Redfin but ultimately went the traditional way instead and users who used Redfin. It will have less selection bias.
Good for them. I'm closing on a house tomorrow in Denver and I have nothing but contempt for the real estate process. I passed on my first house when I found out the selling agent was trying to collect 2x the fee simply because I didn't have my own agent. I finally found an agent who would kick me back 2/3 the fee, since I was doing all the legwork myself.
Freakonomics covers this in their book. Realtors are motivated to do as many transactions as possible, so they are not the best negotiators. They will settle for a so-so price to get transactions done so they earn more money per unit time. There is even academic research to support this.
Not being from the USA, I am not sure how this works. In the UK, generally the person selling a house finds an agent to sell it for them - they normally charge a fee based on the sale price that the seller has to pay.
The buy doesn't require an agent, or pay anything (apart from the price agreed for the house).
After the sale is agreed, the solicitors get involved, and both the buyer and seller will have to pay his own solicitor.
In the USA do you need to pay a fee to an agent to buy a house too? Do they perform the duties of a solicitor or provide any useful function at all for this fee?
When I bought my house, I knew the area I want to live in. I searched for homes using the various websites (realtor.com, craigslist.com ...) I got comparable homes using Zillow. I didn’t really see a need for an agent, but once I found a house myself and ready to buy, I needed to get an agent because the seller wasn’t comfortable selling without an agent. I assume this will change in near future.
Now the case for selling agents making a percentage-based commission is stronger, assuming they actually actively work to sell the home (holding open houses and active promotion).
But when it comes to buyer's agents, the whole idea of paying them based on the sale value is a massive conflict of interest. Why would a buyer's agent be a good faith representative in negotiations if it was in their personal interest that the sale price be higher?
The only reason this has worked for so long is that Realtors collude on the commission (it's 6% everywhere... there is no price competition). They also actively try to control entrance into the profession to make sure everyone tows the line.
To me, a fee-based buying agent makes much more sense. Barring that, at least pay them as a percentage of the difference between the asking and final price. That way if you get the house for $10k under the asking price, they can have 35% of that, rather than 3% of the total value of the home.