And, at least in California, realtors will always push prices up. It’s pretty much never in their best interest to lower the price. Even the buyer’s agent gets paid a percentage of the sale price, so if they try to lower it they’d be essentially working against themselves. And this is without even accounting for all the schemes realtors create (like listing below market to get a lot of offers and create artificially high demand to put pressure on the top offers to increase their bids as high as possible, as well as make them waive their contingencies).
This depends heavily on the market at the time, since there are pressures from multiple directions.
All else being equal, 6% of a higher price beats 6% of a lower price. But 6% of a lower price today in exchange for an hour of work beats $0 if the buyer walks and is not so easily replaced, and it might even beat 6% of a higher price if the higher price comes after many additional hours of work.
Over a long enough timeframe, the trend is toward higher prices, but it's not clear how much of a factor agents are in that, compared to many other factors.
> Over a long enough timeframe, the trend is toward higher prices, but it's not clear how much of a factor agents are in that, compared to many other factors.
I can't imagine agents would have much of an impact when compared to other causes of rising house prices. The way I see it, is that they are more of a kind of facilitator to increase the efficiency of the market, and don't have as much of a role in market behavior.
There is a half-open set of prices the buyer will pay: [0..max).
There is a half-open set of prices the seller will accept: (min..$\infty$]
If these sets do not intersect, there's no deal no matter what the agents do.
If the sets do intersect, the agents collude to ensure that the sale closes at the HIGHEST price in the intersection.
That is why realtors are such a big factor in the housing crisis. They collude to push all of the transactional surplus to the seller, because both agents work for the seller.
Blaming real estate agents is just silly. They're salespeople so of course they're going to try to maximize commissions. Ultimately it's up to the buyer to agree on the price or walk away.
Listing prices are almost totally meaningless. At most they're just a starting point for initial negotiations.
> Listing prices are almost totally meaningless. At most they're just a starting point for initial negotiations.
Not sure if you have no experience in real state at all, or just want to play devil’s advocate.
The listing price can have a huge effect. Like I described before, if the listing price is lower than the perceived value of the listing, it makes it attractive to a wider audience, because people that wouldn’t be able to afford the property at the “real” price will think they can now afford it, thus there will be a lot more offers and that gives the realtors (and seller) very good leverage. This happened to me personally, on “the first round” the seller got 40 offers, so the agent used that to pump up the price and make it look like there was a lot of interest (surely there was, but for an unrealistically low price). There were only 3 offers on the “second round”. After 3-4 rounds, the property ended up going for 20%+ over asking and the buyer had to waive all contingencies. Without the artificially low listing price, they would have probably gotten one or two offers at the most and most likely would have not been able to get the buyer to waive contingencies.
Conversely, if the listing price is too high, the property might take a long time to sell, and lowering the price signals that the seller is either in a hurry or that there’s an issue with the property, either way the seller loses a lot of negotiating power.
I have experience in real estate. Listing prices are largely irrelevant. Your concern is completely misplaced and you don't understand causality. Multiple rounds of bidding are common in high demand areas regardless of whether the listing price is aligned with the market value.
Some of this is changing - I've heard that Redfin agents (who are employees - they don't split commissions the way other brokerages do) get paid a bonus structure that's tiered based on list price. So at the time they show you the house, the bonus they get if you buy it is already set, regardless what you pay for it. They still do have an incentive to show you more expensive homes, but they don't have an incentive to jack up your bid during the negotiations so that they get 3% of a bigger sale price. They also get paid for a bunch of other activities (like giving tours, writing offers, typing up agent notes that you see on the website), so it's not a total loss for them if you don't end up winning the bid.
See, I used to think that maybe with the different compensation structure, Redfin agents' interested might end up being more in line with the buyers. I ended up working with one, and realized that is absolutely not the case.
First, yes, Redfin agents don't get commissions the way traditional real estates agents get commissions. However, Redfin agents do still want to close as many deals as possible. Also, while real estate agents have a tough job finding good leads (especially given that leads don't exactly keep buying property) Redfin agents do not have a tough time finding leads (they have one phenomenal website that just gives them constant leads). What it results in is that a good traditional agent will put in a lot more work to find an appropriate place for you, because not only do they rely on you buying through them, but more importantly, they rely on you being happy enough that you recommend them to other people.
Redfin does not need your recommendations, as they've got a line out the door. So if anything starts getting difficult with your purchase, Redfin has no incentive to stick around and figure it out.
I've bought three properties and made an offer that fell through on one, and looked around other times. I've tried both traditional agents and a Redfin agent, and will never again work with Redfin.
It works for a certain type of buyer, one who basically wants to drive the process themselves and just needs an agent for guidance. This described us pretty well, and many other Millennials. We basically just wanted an agent because we were househunting during COVID and needed one to literally get in the door, and to help guide us through the paperwork and process since we were FTHBs. Redfin was great for this; our agent didn't pressure us to buy or steer us toward any particular homes, then he had a bunch of useful information when it came time to negotiating and putting in an actual offer.
So, I wasn’t a first time home buyer and didn’t hand holding. What I did need was an argent which was actually working for me, not just trying to close at all costs.
I think in situations where the property doesn’t have any issues, where you’re just going in to buy a place, they can work out fine. Unfortunately you have no idea what kind of place you’re looking at until you’re trying to buy it.
Every worthwhile agent will have a ton of useful information before and after you purchase.
Yes, I have seen this too. It works against sellers too, in a cooler market; they are more incentivized to close quickly than to find the best price. Considering it's relatively trivial to list and find just about any kind of good these days, I just don't see the added value that agents bring to either side being worth much at all.
Fun fact: Listings in California used to contain a unilateral offer of subagency by default. So _all_ realtors were legally bound to work in the seller's interest, even if a buyer had reached out to them in the first place. So you can imagine how often you would disclose your buying criteria to "your" agent only to have them utilize that against you.
I sold a house just before the pandemic struck. The realtor I chose, via a friend-of-friend connection, operated several agencies each with several agents; I would guess he had a few dozen people total working under him.
One thing quickly became apparent as we moved through the various processes involved in selling a home – he had his agencies and his agents optimize for volume. In the regions of CA where he operated, "throughput" was definitely not an issue, and so deliberately pricing homes low would cause them to sell faster and allow him / his agents to move onto the next client faster. Given the context, it seems clear to me this would yield more over the long term than fighting tooth and nail to drag out individual transactions to eke out every possible penny.
I caught onto this just before officially listing my house, and insisted we increase the asking price (recommended by him / his team) by 10% – a move he / his team objected to rather frankly. Nonetheless, the sale was completed within 6 weeks or so, at my asking price.
(And seems worth adding he never said thank you for the 10% [relative] extra he earned on the commission)
> Even the buyer’s agent gets paid a percentage of the sale price, so if they try to lower it they’d be essentially working against themselves.
This makes me hopping mad. On what crazy world can they be considered the "buyer's" agent when their incentives are exactly opposite to those of the buyer?
It's like if defense attorneys were expected to argue for the prosecution, and everybody was okay with this.
> Even the buyer’s agent gets paid a percentage of the sale price, so if they try to lower it they’d be essentially working against themselves.
Yeah, I really wish we normalized fee-for-service for buyer's agents. Agree on a fair hourly rate for their time, plus some constant fee for actually closing. The agent can have more consistent income over time, and the buyer can know that the agent's incentives are not misaligned. Buyers at the lower end of the market also don't get lesser attention.
But I think because we have normalized the commission structure, there's now also a bias effect, where the agents who are most willing to agree to a fee-for-service arrangement are the agents who are least successful/satisfied under the commission model.
Supply and demand. I think of demand as people looking to live in homes, not investors. If that was the case, demand should have dropped off a cliff after covid when they closed the borders. Our countries have negative birth rates. Immigration is the only source of new people. So you must have come to the conclusion at this point that the demand is purely investment driven via speculation. Now see a problem with just building more houses? They will just keep driving speculation until it all collapses leaving us with many many homes that will be wayyyy too cheap. And it will collapse, investors are purely just trading with themselves at this point as less and less people are participating in the market.
People moving around inside of a country is also a source of demand.
The price of condos in San Francisco dropped 10% with COVID-19. The prices in the Tahoe area are up about 20 - 30% over the past 12 months.
The demand moved to single family homes, because people wanted a yard, when they were locked down at home, with few things open.
Now that California and San Francisco is opening back up, the real estate demand is coming back, as are the prices. Yes, speculation and investment is part of the story. But also a lot of people made a lot of money in the stock merket over the past 12 months, and are looking to upgrade their housing.
Please no. There is no need to squeeze new buyers and force them into subtandard conditions. There's no reason cities can't redevelop 2 neighborhoods to 10 stories instead of 1 neighborhood to 5 and still have livable 1-2br apartments. The "where will we fit everything" issue is manufactured by NIMBYs who think a designated area for micro-housing or single story ADUs in the backs of lots will spoil their views less. It's another way to maintain the class boundary while appearing socially responsible.
Interesting theory. My CA realtor told me to bid below asking price and we got the house.
Repeat business is a good motivator. We were happy with the realtor after our first purchase, used them to sell that property and again, in our second search and then recommended them to friends who made purchases. The marginal income they could have gotten by pushing us to a higher price are dwarfed by their combined earnings.
That sounds insightful, but there's no point in screwing a buyer for a tiny today payday.
Those agents work on volume, so if you think they're pushing you to not get the lowest price, it's so they can close the deal, not because their incentives aren't aligned with yours. If they're telling you to offer more, it's because they have better knowledge of the market and the game than you.
They're banking on many commissions a month, not on the fractional share of that extra $10k you don't want to fork over.
It’s similar (if symmetrical) to the situation with recruiters — most of their money comes from getting you an offer and you then accepting it. Negotiating a better salary gives them more money, but costs time that would’ve been better spent getting another person a job.
> That sounds insightful, but there's no point in screwing a buyer for a tiny today payday.
Except: 1) most people will only buy a property once, so there’s very little potential downside for the agent, and 2) is not about screwing the buyer over, is about driving the whole market higher so they can keep pumping their commissions up and convincing more owners to sell. The latter is specially easy to do in smaller cities/communities served only by a small number of local realtors.
There’s plenty of people trying to game almost any valuable market in the world. You don’t think at least some realtors (of course not all of them) are trying to do the same? Specially when most of the buyers and sellers are in it for just one transaction in their whole lives, and there’s so much money involved?
Think of it as the prisoners dilemma. If you play once, the optimal is to screw over the other player. That’s what realtors are facing 90% of the time, a sequence of one-time prisoners dilemmas. Except if they do it right, they get to increase the value of the outcomes over time.
> most people will only buy a property once, so there’s very little potential downside for the agent,
Agents do get repeat and referral business if they don't suck; the agent we use has been involved in several sales and a purchase for our extended family in a few years, and we've referred other people to her, too.
> Specially when most of the buyers and sellers are in it for just one transaction in their whole lives,
The median person who buys a home at least once buys significantly more than one in their lifetime (the lowest estimate I’ve seen is around 3, 5+ seems more common), “first-time” homebuyers (which are just people who haven't owned and occupied a home in the last three years, not people who have never owned a previous home) only make up about third of homebuyers.
> the agent we use has been involved in several sales and a purchase for our extended family in a few years, and we've referred other people to her, too.
Great, so you are wealthy and have wealthy friends and family. Cool. That still doesn’t mean agents are not trying to get prices up.
Your experience could mean that your agent noticed you had money and decided it would be in her best interest to treat you well.
You got me about how many times someone buys property. I looked it up and it seems like “most people can expect to own three homes during their lifetimes”. So, let’s say you buy your first home at 30 and die at 81, and own each house for the same time, then you’ll buy a new house every (81-30)/3 = 17 years. It’s very hard for me to believe that an agent will try to get someone a lower price just so they can work with them again 17 years later.
Also, given rising housing prices and the state of overall student debt/rising costs of education, I would bet that the average number of houses someone buys/owns in a lifetime is going to drastically go down in the next few decades (thus reducing even further the possibility of an agent of getting repeat business from a single client, unless maybe they are as wealthy as you and your friends and family).
> Great, so you are wealthy and have wealthy friends and family.
Relative to HN, probably not; globally, definitely, for California...that’s sort of a fuzzy matter of perspective (probably not for a California homeowner), but, eh, whatever. Not the point. My point is that satisfaction is not completely irrelevant for agents.
> That still doesn’t mean agents are not trying to get prices up.
Maybe, though even if they aren't hoping for repeat or referral business the incentives are more for agents to close deals as rapidly as possible; most buyers are going to be looking near the limit of what they can afford anyway, a buyer's agent trying to push them higher is just going to make the process slower. A seller's agent wanting to maximize price would actually be acting in their principal’s interest, but even on the seller side the incentive is to get a deal and close rather than drag things out for a little bump; spending twice the work for a an extra 10% on thr sale price (and thus commission) isn’t a winning move even though it may be what the seller would want.
> Also, given rising housing prices and the state of overall student debt/rising costs of education, I would bet that the average number of houses someone buys/owns in a lifetime is going to drastically go down in the next few decades
The sources I’ve seen have shown it going up recently (increasing economic inequality and buy/rent price ratio should probably have that effect by cutting some of the people that would buy the fewest houses entirely out of homeownership.)
