I wonder if Amazon would ever dive into the home real estate market. With modern day search, realtors provide very little value above doing the paper work, and that seems very automatable. There's just no reason to pay 6% of every house sale to middle men, but that's the way it currently works. A large company like Amazon or Google could make a ton of money at a much lower rate. I think this makes a lot more sense than going into the restaurant delivery business.
They already have trucks and people used to moving things around. They could sell you a house and have your stuff moved in 2 days. I even have the branding figured out for the moving service: Amazon Prime Movers.
There's already lots of healthy competition in moving companies. Imagine if the movers wanted a percentage of your home price instead of few hundred for the day's work.
The problem with realtors is that they've got a lock on the bureaucratic side, and the existing realty sites (Zillow, Trulia, etc...) are aligned with them. There are upstarts in some cities, but the existing realtors in those places collude to keep the process inefficient. It'll take a behemoth to crack it open, but there'll be a lot of reward for someone big enough to pull it off.
How does the collusion work? Just curious since it seems like such an inefficient market (our realtor was a good friend of ours, he /did/ have good local market knowledge and things to say, but no way did he have to do more than 4 or 5 hours of work total for us...)
As an example, buyer's agents will not show, or disparage, homes where the agent's get less than their approx 3%. For instance, Trelora in Denver offers a discount to the seller, but they'll offer full rate to the buyer's agent because they know they'll get more traffic that way. You can kind of read that between the lines in their FAQ:
Even if the buyer finds one of these homes on their own, all the buyer's agent needs to say is something scary like, "I've seen deals like this fall apart, and I wouldn't risk tying up your money if you're not dealing with a responsible realtor".
Then they'll say something like, "besides, the seller pays the closing costs!" ... which is a huge lie if you consider that the buyer is the only person bringing any money to closing.
I thought about this a lot during our home buying process. Our agent, too, wasn't asked to do much... because we found the house we wanted online, and had our financing, so the agent didn't have to show us any houses or help us along in any way. She just submitted our offer and that was that.
I have heard that realtors, like for instance car dealers, simply have a vested interest in middleman-ing the inventory by way of commission and there are powerful lobbies that protect that interest. I've heard that there is cartel-like control over the MLS listing service, which requires you to be a member of the Realtors Association for access, and is a shared venture between all the major real estate companies -- which, if you aren't a part of, basically means you can't even know what house is for sale. I don't know if any of that's true.
In this day in age, it's hard for me to fully trust a process like buying property that is just so opaque. Purely for conversation purposes, an anecdote of mine: we bought a house and we were willing to pay a certain amount over, no more, because we had a hard budget. So we told our agent, we want this house for list price. The agent says, we can do that, but "the seller is expecting multiple offers and they are reviewing them tomorrow". Okay, fine, whatever. So we put in our offer, with an escalation clause going up another $15k to our theoretical max. Lo and behold, we have two offers on the table that beat ours. "But they really liked your letter, so is there any way you could make your offer better? Borrow money from your family? Take an employer loan from your 401k?" So I say no, absolutely not, I won't be doing that. We'll just wait til next year when we have more money and do this again. Thanks.
So a week later, we get a phone call. Oops! Guess what? The top offer bailed unexpectedly, and the 2nd best offer wants time to reconsider. "If you resubmit your offer tonight, I'm sure the seller will accept". Okay, fine, resubmit it. Thirty minutes later, the offer was accepted and we closed in about 20 days from then. It was a crazy ride! And we are definitely happy with the house we got for the price we paid. But at the same time, I'm left to wonder... how do I know those other offers existed? How do I know they weren't just trying to get more money out of us? I suppose I could ask for proof, but even those types of documents have been faked before. I trusted our people and the process seemed above board, but it's one of those things that is so convoluted and human that I felt weird about it then, and I still do to some extent. Perhaps I'm just cynical. It really doesn't keep me up at night, though. Like I said, I'm happy with the place.
But the reality was clear: in that industry, it seems so clear that collusion COULD easily exist... and if that's the reality, I'm sure it does exist in at least some instances.
I'm hesitant to concur with you on the home inspection. The home inspector I've used several times has discovered termites, and other massive problems that would have cost me upwards of $40,000 on one specific house I was interested in buying. I paid a few hundred bucks to save myself from that headache.... The realtor on the other hand did almost zero
In Arizona, every stick-and-stucco house has (or will have) termites. The inspector already knows the answer before he shows up. You pay for "treatment" each time the places changes owners.
When I sold my first house, The buyer's inspector "discovered" termites which would need treatment. However, I had preemptively paid a professional to do treatment just two weeks earlier. When I told the new inspector this, he called the previous inspector. After talking on the phone for 2 minutes, they agreed that I was termite free!
As long as someone got paid for treatment, they were happy. I doubt the buyer knew it went down that way.
Offering without an agent doesn't necessarily save money. It depends on the details of the seller's listing agreement. It could require dual agency or even without dual agency the listing agent could retain the full commission if there isn't an agent representing the buyer. The commission amount and split details are set in that agreement and the laws vary per state.
If the seller had a real estate agent then the seller already signed a contract to pay a fixed commission to the buyer's agent when the house is listed. Depending on the contract the seller signed, if there's no buyer's agent, usually the seller's agent's gets both the buyers agent's commission and the seller's agent's commission.
So you don't usually save money by not having a buyer's agent.
The buyer doesn't pay the agent, both agents' commission comes from the seller. Also, the agent we ended up with was a direct recommendation from the selling agent, and we figured this would give us a little extra "boost" with her by using her friend.
> the agent we ended up with was a direct recommendation from the selling agent, and we figured this would give us a little extra "boost" with her by using her friend
Huh what? So what incentive does your agent have to negotiate a good deal on your behalf if she’s earning a price commission, and she’s friends with the selling agent?
> So what incentive does your agent have to negotiate a good deal on your behalf if she’s earning a price commission
That's a great question, but it's not unique to my situation... it's standard that agents split the commission. You could say that any agent or salesperson is never incentivized to give any buyer a deal on anything as long as they collect commission.
Secondly, we paid what we thought the house was worth. We're in a competetive market and had a hard budget. The house price came in below budget. As far as I'm concerned, we got a fine deal.
Well, yeah, sure. Money goes from me, into the "middle of the table", and then everyone takes their share. It's important to say, though, that with or without my agent my buying price was going to be the same regardless... however, the seller may receive slightly less. I think in practice you'll find it difficult to approach the process with a mindset of "if I don't use an agent, the owner will give me a 3% discount".
Really, it's just part of the scam. Most people actually believe the seller is paying the realtors. It's how the buyer's agent can say, "Don't worry about my rate, the seller pays it!", as though you're sticking it to the seller. I've already seen three people repeat/believe that lie in this thread.
If what the realtors said was true, there would be a conflict of interest. However, there isn't really a conflict here because the buyer and seller are both splitting the loss. One is paying too much, and the other isn't getting paid enough.
The real conflict comes because both agents want you to compromise your price for an easy sale. If you sell your $500k house for $20k less than it could, they only lose a few hundred dollars. That agent will play various tricks to try and talk you into losing $20k so they can get a quick sale and be done with you. Similarly, they don't care if your loan is a bit larger when you're buying. They're not looking out for your best interests.
If the middlemen/parasites were out of the loop, the buyer could pay 3% less, the seller would get 3% more, and some reasonable agency could get a fixed fee for doing the paperwork. Hell, the title agency could do the work trivially, but I'm guessing they don't want to risk rocking the boat. Maybe the current system was reasonable when all you had was newspaper listings and for sale signs, but it's corrupt now.
Redfin is already in that market and it doesn't seem to be doing very well. I'm actually fairly surprised how slow redfin is able to grow and expand their market. Their website felt second to none in terms of usability.
Redfin looks like they're trying to be a "discount agent". Here is a quote from their front page:
> We're full-service, local agents who get to know you over coffee and on home tours, and we use online tools to make you smarter and faster.
This isn't what I had in mind at all, and I'm not surprised they have trouble getting traction with that approach. If they save you 1.5% on your half, but the other agent still gets their 3%, you'd only save 25% of the thousands you spent in middle man costs. Meanwhile, all the 3% agents out there are applying pressure to see it fail.
In the ideal case where they get both sides, Redfin is only saving you 50%. There is no reason home sale paperwork should cost thousands of dollars to process. Someone like Amazon could eliminate agents altogether.
Here is another analogy - imagine TurboTax charged you a percentage of your yearly income instead of a hundred dollars for the "Deluxe" version. That would be insane.
> There is no reason home sale paperwork should cost thousands of dollars to process. Someone like Amazon could eliminate agents altogether.
It’s a mistake to think that the real estate commission is primarily for paperwork or executing transactions that would have happened anyway.
I brought my house to our agent and pushed the sale through. That’s probably a rarity when I think about all the time friends of mine have spent with agents “house hunting”. That time costs money and to a great extent, the fat commissions are paying for a lot of “no commissions”.
People seeking to disrupt the “fill out the final transactional paperwork” part of real estate need to figure out how to disrupt the whole value chain, not just the part that looks outrageously overpriced.
I've bought 3 homes now and sold 2. There was no "house hunting" process. I went online, looked at photos, and made an offer - same as you.
On my second home, I told the realtor exactly what I wanted and where. She failed to find it in her search (she did a zip code search instead of looking at the map), so I showed her the listing I wanted to see. There was no extra value to justify 3% of a sale for hundreds of thousands of dollars.
As for the seller's agent? They put the listing on MLS and have a token "open house" for a couple hours on one day. If you're lucky, they get a professional photographer and print a few brochures for the walk throughs.
> People seeking to disrupt the “fill out the final transactional paperwork” part of real estate need to figure out how to disrupt the whole value chain, not just the part that looks outrageously overpriced.
Why is that? Why not focus on fixing the worst part of the problem?
Because the transactional paperwork can already be filled out, even by real estate lawyers, for a couple grand today. No one is paying 5% for that, even though would-be disrupters talk about it that way. Think about what it would take to transfer your house to a family member, assuming it was paid off. That paperwork would be ~$500 per lawyer involved. Anything more that you're paying for an arms-length sale transaction isn't related to the paperwork processing part of it, IMO.
What's really being paid for is access to MLS, advertising, labor to drive people around, maintaining the brokers office, people on both sides who talk crazy people off the ledge and keep deals together when someone is flipping out over a $1000 repair one way or the other.
Even when you "went online", I bet you found the house via a paid insertion into MLS (most likely) or a real estate advertising site. Why did you go there? Because that's where the houses for sale are. Why do people pay so much to put their house in MLS? Because that's where the buyers go to search to come up with their short-list of houses to go visit. Why should MLS listings be so expensive? Because they've built the marketplace. Same as why Amazon or Ebay can charge so much.
Access to MLS? Driving people around? You think any of that should cost the $25,000 the buyer and I paid agents for the house I sold last year? We could've bought a new car for those commissions! Are you an agent, or related to one? I can't see any other way you could defend that nonsense.
Someday one of the big companies is going to figure out how to put the parasites out of business. Amazon could pull it off, so could Google.
I'm not involved in real estate and agree that the services are over-priced relative to the value. (I have a friend who's an agent; he and I pretty regularly get into it.)
I don't think it's defending the nonsense, but rather explaining that there is some value there and it's not predominantly in filling out paperwork. It's a sales job, selling people the most expensive and leveraged thing they'll ever purchase and the place they're going to live/raise a family, with all the good and bad that comes along with that.
In Sweden agents that help with house hunting basically don't exist outside the very very top end of the market. Everybody finds their own houses via ads, book their own viewings with the sellers agent and handles the bidding process themselves. When it comes to paper work the buyer and seller "shares" the same agent who has a fiduciary duty to both parties (even though they're paid by the sellers). With the internet being what it is people should be able to "hunt" their own houses and set up their own viewings.
Not everyone is internet savvy. Not everyone knows what they want. Not everyone knows what they can afford. Not everyone comes from a history of property ownership. Some people need assistance on things that others can self-serve.
Real estate agents, even the so-called "buyer's agent," are the house equivalent of "used car salesman."
Just like you shouldn't trust a used car salesman to tell you what car would fit your needs and you can afford, you shouldn't trust a real estate agent to tell you what house would fit your needs and you can afford.
FlyHomes is doing something interesting by actually buying and selling houses, not just facilitating transactions. It takes a lot of the risk and uncertainty out of the process. I hope they can succeed at scale.
What rate do they charge? It looks like they provide a cash offer and then find financing so you can buy it from them. I didn't see anything about how this eliminates middle-men and egregious fees.
I'm not sure though, because I got a "Oops, something went wrong" popup when I tried to use their site.
> Flyhomes makes money through the commission paid by the home’s seller.
This is the same lie all realtors love to throw out. "You don't pay - the seller does!". Never mind the buyer is the only person who brings money to the transaction.
Unless that commission is much smaller than a traditional realtor, I hope they fail.
There are more ways to innovate than just offer the same thing for less money. You can offer more things for the same money, which is what FlyHomes is doing. That is actually the more common and more financially viable form of innovation.
You're right, of course. However in this case, I'd like to see someone fix the problem instead of just making it more palatable. To me FlyHomes looks like just another realtor who screws you for too much money, but they give you flowers before they start and candy when they're done.
It's expensive to have boots on the ground in every zip code. RedFin hires their own agents full time. OpenListings and Zillow refer online buyers to their affiliated agents who cut them a deal on commission in exchange for leads. You can always list a place with photos and all on Zillow or CraigsList and mention that seller will not pay an agent's commission. End of the day there's a "For Sale by Owner" sign for those driving or walking by.
But considering that in the US it's the seller who pays both agents, there are no immediate savings for potential buyers, and some, being new to the home-buying process in general or new to that zip code, would prefer some hand-holding and chit-chatting provided by their agent at no cost to them.
Among some not so obvious valuable tidbits that the buyer's agent can provide:
* general feel about the neighborhood, whether it's on the rise or in decline
* previous scandals and issues, like contaminated water, city attempting to pass an additional levy or tax, house being on the airport path, etc.
* potential future improvements, like a light rail station planned nearby
* referrals to various local professionals, like inspectors, surveyors, painters, or movers
* any other new developments in town or neighborhoods that the buyer might not have considered, especially when shopping remotely
> But considering that in the US it's the seller who pays both agents, there are no immediate savings for potential buyers [...]
This is all part of the scam, and I'm surprised more people can't see through it. Five people walk into a room at closing. There are two agents, a title agent, the seller, and the buyer. Only the buyer brings any money - so it's pretty clear who is paying.
Put it another way - if the seller goes with a lower percentage agent, then the buyer keeps more of the offer price, and should therefore accept a slightly lower offer. This saves the buyer money too.
> Among some not so obvious valuable tidbits that the buyer's agent can provide: [...]
And you think that's worth 6% of a house that costs hundreds of thousands of dollars? I think that's insane.
Fair enough. Those commissions do compress as the house prices climb into 7- or 8-digit ranges, and there are always discount agents. The one in my area buys billboards that promise selling the house for 3% flat.
I was hoping perhaps someone from the industry could comment on why those agents haven't overtaken the market by storm.
Theoretically agents could do these things, but most don't. They want deals to close. Giving you reasons not to buy doesn't close deals. If it turns out you don't like the house they'll be happy to sell it for you later.
It probably varies by the agent, but I have had good experience with a real estate agent being on the buying side. His reasoning was that the seller's agent was on the clock to close the deal on that one property he got assigned, whereas the buyer's agent would make roughly same amount of money on any property I would end up purchasing, so he had no reason to pressure me into closing.
