Has the Internet killed real estate agents yet?

Back in 2002 when I was first interested in buying a house, I went on the Internet and found lots of houses for sale, directly from the sellers. I bought the house I own right now directly from the seller. At the time, I was convinced that the days of real estate agents were counted. I remember telling a friend who wanted to go into real estate that the Internet would soon kill this industry.

It made sense. Idiots like myself could buy houses from other idiots, that is people without any training in real estate, without any other intermediary than the Internet. How long could the real estate agents last?

Real estate agents don’t inspect houses, they do not have power of attorney, they do not provide deeds, they do not provide the financing, they do not provide the insurance. Real estate agents may take the pictures and post them on the Internet, but iPhones take decent pictures.

A home inspection (not covered by the agent’s fees) might cost you $300. A lawyer will charge you a flat fee to represent you in the transaction (maybe $1000, not covered by the agent’s fees). The bulk of the transaction costs are taken up by the real estate agent.

Yet real estate agents are still with us, charging 5% in commission. That’s a sweet deal: sell a single home and you can charge half of what many people make in half a year.

It hurts my ego to admit that I was badly wrong: the Internet has not affected real estate agents in the least.

You’d think people would be eager to keep the commission fee for themselves (it is tens of thousands of dollars!). The Washington Post tell us that nothing of the sort is happening:

And over the past decade, the Internet has disrupted almost every aspect of a transaction that sits at the core of the American Dream. Everyone now has free access to information that used to be impossible to find or required an agent’s help. But as a new home-buying season kicks off, one thing remains mostly unchanged: the traditional 5-to-6-percent commission paid to real estate agents when a home sells. While the Internet has pummeled the middlemen in many industries — decimating travel agents, stomping stock-trading fees, cracking open the heavily regulated taxi industry — the average commission paid to real estate agents has gone up slightly since 2005, according to Real Trends. In 2016, it stood at 5.12 percent. “There’s not a shred of evidence that the Internet is having an impact,” Murray said, sounding like he almost can’t believe it himself.

The article argues that the sale of a home is a complicated transaction. Oh! Come on! That’s a pathetic explanation: planning a trip abroad is complicated and, yet, we have no qualm doing away with travel agents and using the Internet instead. Of course, the transaction cost is higher which makes it worthwhile to pay someone to help. But 5% of the transaction is lot. In Canada, that’s about $25,000 to sell a single house (5% of $500,000): the price of a brand new car. And selling and buying houses is really not that complicated. It is not $25,000-complicated.

Recall that real estate agents do not provide home inspection, insurance, financing, legal titles… all of these things are separate expenses provided by separate people.

Whether real estate agents have expenses, and how much of the 5% they pocket is irrelevant. The fact is that this 5% has remained the same for decades. This means that, in real dollars, real estate agents cost the same today as they did decades ago.

To put it another way, the productivity of real estate agents has, if anything, decreased in recent decades despite all the technological progress. In comparison, all industries confounded, productivity grows by about 1% a year. That’s why Americans, on average, are much richer than they were decades ago.

On average, workers are at least 20% more productive today than they were 20 years ago. But not real estate agents.

Another way to describe a stagnation or decline in productivity is to say that real estate agents, despite all their new tools, are not getting any better over time, and are probably getting slightly worse since their cost is rising.

They have cheap mobile phones, the Internet, databases, fancy software… all of that has not, in the least, made them more productive.

How well do the real estate agents serve the interest of their clients? Maybe not so well:

Those selling without an estate agent were more satisfied and the gap between sales price and asking price was smaller than for those selling through a real estate broker. (Stamsø, 2015)

Our central finding is that, when listings are not tied to brokerage services, a seller’s use of a broker reduces the selling price of the typical home by 5.9% to 7.7%, which indicates that agency costs exceed the advantages of brokers’ knowledge and expertise by a wide margin. (Bernheim and Meer, 2012)

Many real estate agent recommend that sellers lower their prices (thus making their job much easier) on the belief that buyers are going to bid on the house. Yet this is a terrible strategy for their clients:

While the (…) recommendations of real estate agents (…) favor underpricing, alluding to a potential herding effect, our market data do not provide any support for this strategy. (Bucchianeri and Minson, 2013)

Can you do better with a cheap, flat-fee broker? It seems you can:

Brokers with a flat-fee structure who charge an up-front fee (which is substantially lower than the average fee of traditional brokers) and leave the viewings to the seller sell faster and at – on average – 2.7 percent higher prices. (Gautier et al. 2017)

So knowing all this… why hasn’t the Internet at least forced the real estate agents to lower their commission fees? If Uber was able to break the cab driver’s back, why can’t we come up with the equivalent for real estate?

I have nothing against real estate agents, I am just curious. And please, don’t tell me it is the “human element”. People don’t go around hugging their real estate agents, not any more than they hugged their travel agents.

Update: A comment by Panos Ipeirotis suggests that travel booking sites also charge a large percentage (15%-20%) on hotel reservations while AirBnB charges 6% to 12%. This would mean that real estate agents might not be such outliers. I went looking for signs that travel agents had disappeared and it seems that there are still many of them, though their work was transformed over time. This makes me question the belief that “the Internet has pummeled the middlemen in many industries” as stated in the Washington Post.

83 thoughts on “Has the Internet killed real estate agents yet?”

  1. As for why real-estate agents still exist at all: they are necessary for sales when the seller has already moved out to another town. Huge hassle to set up meetings with multiple prospective buyers to let them into the house or apartment at a time of their convenience. Agents exist primarily to serve that purpose.

    Agreed about the ludicrous 5% charge, though. In Germany they charge it because they can: they have respected professional organizations with impressive-sounding professional qualifications, and everyone of course charges the same fee to avoid unseemly competition. Not sure if “rogue agents” with flat fees exist here yet, although I do think they are technically legal.

    1. Yes, it makes sense to pay someone to help you in a large transaction. There is no denying that.

      In Germany they charge it because they can

      Of course, they do because they can. But that does not explain why they can.

      Why is there no pressure for them to lower their fees? Their job is certainly easier than it ever was.

      1. I can only assume it’s because people buy and sell homes so rarely and the overall transaction value is so high, that they don’t care too much about the fees.

        I also think there’s a related psychological aspect: those professional qualifications, however phony, instill some degree of confidence when making such a large and rare transaction.

    2. “Agreed about the ludicrous 5% charge, though. In Germany they charge it because they can: they have respected professional organizations with impressive-sounding professional qualifications, and everyone of course charges the same fee to avoid unseemly competition. Not sure if “rogue agents” with flat fees exist here yet, although I do think they are technically legal.”

      I’m sorry but this is crap. You are literally describing how Realtor view themselves in America. They have ” respected professional organizations with impressive-sounding professional qualifications” too. Also the vast majority do this “everyone of course charges the same fee to avoid unseemly competition”

      I’ve worked and bought homes in the UK and the US. The reason I felt compelled to respond is your comment seemed arrogant and ignorant in the extreme.

      1. You seem to have thoroughly misread my comment. I do not doubt that realtors work in UK and US much like in Germany, but it’s only the latter that I’m personally familiar with. The “respected” etc. was of course ironic. Realtors provide precious little actual value for their high fees, so the facade is a requirement to make the fees seem reasonable.

  2. Both the buyer and the seller have to decide to forgo using an agent in order to have an agent-free transaction. Perhaps the situation is somewhat like a prisoner’s dilemma. The travel example is not quite analogous, because the choice is entirely up to the traveler.

    1. As far as I can tell, in Canada, the buyer does not have incentives to sign up with an agent, only the seller does. So as a buyer, you can shop around, try agents and also check out the Internet. If, as a buyer, you choose to limit your options to whatever an agent will show you (=sellers that have signed up with an agent), then you are obviously being captured. But why would you do this?

      For the seller, it is a bit more complicated since they usually have to sign an exclusivity contract. But why would the sellers agree to such harsh terms?

      1. Why would a buyer not want to have representation, when the buyers’ agent is paid by this listing brokerage as a requirement of MLS participation? Effectively, the buyer’s agent works for the buyer at no cost to the buyer. The listing brokerage’s fee schedule (commission percentage or flat rate) to the seller does not change when an unrepresented buyer shows up, so the only person who benefits from the buyer not using a buyer’s agent is the listing agent.

        1. This actually would be fraud all most everywhere I have heard of in North America at least. The buyers commission can not be pocketed by the selling brokerage. In fact it is never forwarded by the seller’s lawyer, only the funds agreed to in the commission sharing agreement built into the sale agreement (or it’s equivalents)

          1. Actually the listing brokerage and the seller agree on a %. If a buyer uses a different agency, the % is split between the two brokerages. If the buyer is unrepresented, the listing brokerage earns the full % and does not split with anyone. Ps the “agent” doesn’t receive the commission. The brokerage firm does. The agent receives a portion of that based on their ageement with their broker.

      2. That is completely incorrect. Buyers in Canada do sign with real estate agents. This in no way limits your options to what an agent will show you. An agent doesn’t get paid unless a deal comes together so it would make zero sense to limit showings at all.
        Also an “exclusive contract” doesn’t give the agent complete control, in fact the contract isn’t even between the agent and the homeowner at all.

  3. The analogy with taxis and travel is not quite right. Selling a house with an agent involves two individuals (as opposed to one and one service providers as in taxi or travels)
    There might be also a psychological factor because it is — mostly — a once-in-a-lifetime event, and people are willing to pay for it. I would think that the use of agents declines for people buying/selling frequently.

    1. Selling a house with an agent involves two individuals

      Doesn’t Airbnb also involve individuals?

      There might be also a psychological factor because it is — mostly — a once-in-a-lifetime event

      Could be.

      people are willing to pay for it

      And it does make sense to pay for it… but the amount being paid should be lower today since it is easier to sell and buy.

      Here we have a setup where the job of selling and buying houses are never been easier, the information is freely available and easily managed… whereas the commissions are, in anything, increasing.

      In effect, I am saying that the Internet should have increased the real estate productivity. It hasn’t.

      1. My wife is a realtor. She has been a realtor since 2002.
        What my wife goes through to list or sell a home is not an easy job. She also has to pay for her own training, insurance, automobile, gas, and upkeep out of the 3% commission.
        Owners usually have an emotional attachment to their home, therefore, they tend to overpriced their home, which causes it to stay on the market for a longer period of time.
        The buyer wants to get the home at the best lowest price. A great realtor then becomes more like mediator. The sell and/or buy of a home is probably one of the largest purchase a person will ever make in their lifetime. I for one am willing to pay the 3% on the buying side to handle all the documents and transactions to be submitted, not to mention a realtor being aware of the home price market for the neighborhood.

        1. I for one am willing to pay the 3% on the buying side to handle all the documents and transactions to be submitted

          For an average house in Canada, that’s well over $10,000. I am not sure which paperwork one refers to, but it does not include the deed, which is a separate step with additional fees, nor does it include the financing or payments.

          not to mention a realtor being aware of the home price market for the neighborhood

          It is trivial, at least in Montreal, to look-up prices online for similar houses in a neighborhood.

          1. The internet has made buying and selling harder.
            Most of the data is wrong. I cant count how many times I get a call from someone regarding tax rates for a property they like and zillow has it way low.. Also, Zillow zestimate is off in most markets by 20%+ more then 80% of the time. Why would you risk underpricing your most valuable asset by 20%+? Why would you risk overpaying for your most valuable asset? Why would you risk overhaggling on repair requests, especially if your agent, who has likely spent 10k hours watching the market, touring 1000s of homes, has 100s if not 1000s of closings under their belt is telling you that the price is incredible and if your not more flexible on a 100 dollar repair your going to lose 30k in potential equity. See it happen all the time. Selling and buying is rare and extremely stressful. The internet cant cope with that part of the transaction.
            Your edit is correct regarding the travel industry. Early on, I felt like i was finding my own incredible deals, no need for a travel agent. Now those easy deals are gone and so are the traditional agents.
            Tech companies have given people who liked the no haggle pricing of the saturn, a way to buy and sell homes.
            Lets not forget the actual viewing of homes. I see this in the rental market and it amazes me everytime. Landlords trying to save a fee and list on their own. Tenants who dont know they can use an agent. Months and months of vacancies for landlords in hot markets.. because they arent available 9-9 for showings. They often accept the tenant who is most eager to match the landlords schedule as months if vacancy drags on. These most eager often have issues and hope the inexperienced landlord doesnt do a rental background check, leading to huge risks in the landlord.. costing months of lost rent and eviction costs.. all because they wanted to save 10% annualized.
            The tenant side is just as bad.. They often call me 6 months in advance expecting a 3 day rental process to take 6 months. 6 months to do it themselves vs 3 days!! The internet has made it harder to buy and sell.

        2. You forgot to mention that,
          First: not every listing will give you 3%(or 6% with the buyer side),
          Second: you do not make the 3%,
          A Little less than Half(depending on your split) goes to the broker, 0.5% goes to marketing,
          Net Pay is around 1% of the transaction.
          This article messed up when he talks about commissions.
          James, Great point. There are tons of fees, licenses, Mls , gas and the list goes on that the realtor has to pay, without mention zero benefits, we are independent contractors.
          How about having a professional to help you sell the most expensive item in your portfolio.
          Funny that he talks about $25k in commissions, just do the math, you need to sell a over a million dollar home to achieve that. Does not happen every day or year.

          1. While you are right, you forget that the point Daniel is making is that things have gotten easy for the agent with automation, prices of real estate have exceeded inflation, but the commission has not gone down.

      2. “Doesn’t Airbnb also involve individuals?”
        It does indeed. But look closer at the business model. The company charges the “host” a service fee of 3%. It also charges the traveler a “Guest Service fee” that varies between 6 & 12 %.

        Airbnb hasn’t REMOVED a middleman. They’ve simply hidden it so that people forget it’s there.

        Neither has Uber, or any of the other rideshare companies. Each of those companies keeps a hefty percentage of the fare paid by the rider. I believe it’s up near 20% in most cases.

  4. There are exclusive buyer agent agreements in Canada and people do sign them. Also, if the buyer decides not to use an agent but falls in love with a home such that the seller has an agent, then the buyer must use the seller’s agent. The buyer cannot directly deal with the seller.

    1. Also, if the buyer decides not to use an agent but falls in love with a home such that the seller has an agent, then the buyer must use the seller’s agent.

      … because the seller has signed away his right in the first place.

      But then, my question is really: “why hasn’t the Internet lowered their power”.

      Why would I agree to sign away my rights when doing so, the research shows, is against my own interest?

  5. The real estate market cannot really be compared to the taxi or travel market. I can perfectly go to any place without a travel agent by organizing the trip myself but if I want to have that exact real estate then I will have to buy into the agent no matter if I want to use their services or not. For me it’s pretty much like protection money. In the Austrian rental market usually only the buyer has to pay the agent. Since flats in cities are scarce, it’s a seller’s market for the agents as well.

    1. I can perfectly go to any place without a travel agent by organizing the trip myself (…)

      That’s true today with the Internet. However, only 20 years ago, that was not practical. For example, you’d have to track down a hotel in the city you wanted to go. Then you would have to call them (using the phone) to make a reservation. Same with booking a flight. It was time-consuming and required a lot of knowledge.

      I will have to buy into the agent no matter if I want to use their services or not

      I don’t think that’s true. Look at how I started my blog post, back in 2002, there were already plenty of houses advertised on the Internet. This is even truer today, of course. I bought my current house without a real estate agent many years ago.

      The very fact that researchers can compare the degree of satisfaction people have with and without an agent proves that people can manage without an agent. And the research seems to indicate that people who forgo the agent are more satisfied.

      In the Austrian rental market usually only the buyer has to pay the agent.

      That’s interesting. The reverse is true in Canada.

      1. I would argue that people who bought without an agent would be inclined to say they were satisfied with the process. You might get a different answer if a couple disagreed over whether they should get an agent, went without one, and then asked the person who disagreed.

        Also people who paid an agent have a tendency tp question their value since they paid a lot for it. It is like customer satisfaction on high end cars.

      1. You do realize that not every home is over a million dollars and you do not get the entire commission.
        To make what you stated in the article is selling homes over 1.5 million.

        1. you do not get the entire commission

          That changes nothing. Even if the agent made 1% out of the 5% charged to the homeowner, the homeowner still pays 5%.

          It is tens of thousands of dollars. In comparison, a home inspection will be a few hundreds, a lawyer will charge you a flat fee, maybe as low as $1000. The bulk of the transaction fee is clearly charged by the agent.

          To make what you stated in the article is selling homes over 1.5 million.

          Real estate agents in the US charge over 5% on average. 5% of $1.5 million is $75,000

  6. If both buyer and seller have agents, the agents split the commission (2.5% each, instead of 5% for one). From the buyer’s point of view, it might seem like the cost of their agent is free, since it does not effect the total price that they pay.

  7. The comparison with the hotel search is good. The typical GDS (=global distribution system, the bakends of Expedia etc) systems charge a fee of 15%-20% of the hotel booking price. AirBnB charges about half that, between 6% to 12%. Still, both the GDS and the AirBnB fees are much higher than the typical real-estate broker fee, which is around 6%.

    As in the case of real estate, in principle, hotels would be better off by getting clients directly, bypassing intermediaries altogether. However, this has not happened, due to the highly-fragmented nature of the hotel market. Buyers cannot search the market effectively to find what they need. The case of real-estate agents is similar.

    The intermediaries in both real-estate and hotel-search are smart to avoid imposing any fees to the buyers, making the sellers absorb all the visible costs.

    If you compare with the airline market, you will see that the intermediaries get, comparably, tiny fees. They are in fact so tiny that one travel site entertained the following: When the user is about to click “confirm” to book a flight, pop-up an ad and send the user to book directly with the airline. The referral advertising fee was competitive with the fee that the travel site could charge for the flight.

  8. It is also about trust. A friend in russia sold her appartment, with the money going directly to buy two smaller appartments. There was a huge anxiety regarding being screwed over, when so much cash walks over the table. Stories with people selling appartments, that they do not own, enemy appartment take overs with kicking old people out and so on. If those real estate brokers push such stories, only evil minds would think so. :>

    1. when so much cash walks over the table

      At least in Canada, real estate agents do not handle the transactions: banks do. It would be very unusual to buy and sell properties using cash, it is all through bank accounts.

      Stories with people selling apartments, that they do not own, (…)

      At least in Canada, real estate agents do not handle this part of the business, as they typical do not have any legal stance to do so. There are official registries and you have to pay separately to get the deeds. Legal fees are a fraction of what the real estate agents charge.

      In effect, at least in Canada, all that the real estate agent does is to connect the seller and the buyer, everything else (transactions, deed) is separate subject to its own fees.

  9. My accountant actually recently recommended that one of my spouse or I get a real estate license to avoid these fees in the future 🙂 So I am now somewhat up-to-date about this (and you, too, could be for the low low price of $66 and a 75-hour online course).

    To be clear: this is all for NY state/USA, so laws in Canada (and to a lesser extent, other states) may be different than what I know. However, to clear up a few misconceptions from the other comments:

    * I think the main reason is that most listings are posted on multiple listing services, which, depending on the MLS, may require you to be an agent to participate in. Thus, I think the internet has probably exacerbated the need for agents, since people generally aren’t finding houses by driving around seeing lawn signs or checking the classifieds anymore.
    * Brokers that charge flat fees absolutely exist. They are generally called “discount brokers.” Keep in mind agents aren’t keeping the commission, either, it actually goes to their broker, it’s split between the buying and selling brokers, and then the agents get a percentage of it.
    * As someone mentioned above, if the seller uses an agent and the buyer does not, the seller’s agent will be a “dual agent” for both parties in the transaction. Now, if the buyer is using an agent and the seller is selling-by-owner, the buyer’s agent isn’t going to be super interested in showing the buyer that property, since they might not going to get a commission for it.
    * There are an amazing number of disclosure laws about property condition, history, and rights which are mostly waived when an owner sells a property themselves.

    However, going through the course taught me just how many people have their hands in the pie on an average real estate transaction and it’s kind of ridiculous (at least a dozen by my count). I think the industry is ripe for disruption, but it’s also dominated by who owns the listings, which right now is Murdoch (realtor.com).

    1. Fantastic.

      Though I am sure that laws and conditions vary quite a bit as you move around the globe, my hasty research seems to indicate that there are many similarities.

    2. Not sure how NY is but in IL your only considered a duel agent IF both parties agree to it and if seller has an agent and the buyer doesn’t it really doesn’t matter. If the buyer has one and the seller doesn’t, you can still show the home, but can choose have the buyers sign that if they choose to buy the fsbo home that they will be responsible for paying the agents commission.

    3. You are right on. My wife is a realtor with 13 years experience selling high end homes ($400k – $1M). For a while, she was helping with VA buyers, but the obstacles and uniformed buyers make it hard to assist the VA buyer, who’s in the market for a $150k home. She actually has to work twice as had to help a first time VA buyer, mostly because they are not savvy on a real estate purchase.

    4. I have been a REALTOR FOR OVER 35 YEARS. I have always put the seller’s interest above my own. I have many times lowered the fee to the seller to make the sale work.
      I say to those who think real estate brokerage is so easy, quite your job, get a real estate license, work fulltime and try making a living selling real estate.
      It takes a special kind of person to be successful in real estate.
      James G Snotherly, REALTOR
      Raleigh, NC
      919-345-2458

    5. Kristina: * As someone mentioned above, if the seller uses an agent and the buyer does not, the seller’s agent will be a “dual agent” for both parties in the transaction. Now, if the buyer is using an agent and the seller is selling-by-owner, the buyer’s agent isn’t going to be super interested in showing the buyer that property, since they might not going to get a commission for it.

      Me: I am a NYS agent. No, that is not how one becomes a “dual agent”. One becomes a dual agent when buyer and seller agree to it. Then the agent becomes a facilitator and the seller loses all the fiduciaries they previously had with the agent. I do not work as a dual agent, if I sell my own listing the buyer understands I am representing the seller and has agreed to use me to purchase. I have a duty to treat the buyer fairly and honestly, and if you think I’m going to screw someone who is going to see me at the supermarket and tell all their friends I screwed them, that’s just silly.

      I have sold FSBOs representing buyers and had no trouble having the seller sign a one time fee for that buyer. If they don’t, the buyer is responsibly for the fee and it becomes part of the offer: “buyer offers $X with X% paid to my agent at closing”. If the FSBO fits my buyers needs, I sell it.

      Kristina: * There are an amazing number of disclosure laws about property condition, history, and rights which are mostly waived when an owner sells a property themselves.

      Me: What makes you think sellers don’t have to disclose if they don’t use an agent? Did you say you got licensed in NYS? @@

  10. Here is the answer from an experienced by owner seller who turned to use the agents: Both buyers and sellers are uneducated as to the mortgage and realestate attorneys who can help. Also EVERYONE personally knows a realestate agent so a LARGE percentage of buyers have agents or should I say the agents exclusively lead them to the highest cost purchases, one can not even list on Zillow without the agents appearing affiliated from the buyer perspective. Thus you reduce dema.d by cutting out agents. $30,000 to sell my house and I paid it because by owner I would not have the same customer base. Now however I would know hiw to advertise it on my own and will do that for my clients as tbeir realtor.

  11. The same is true in many fields. Why do Professors get paid so much! I can look up all the things I want to learn on the internet. No need for universities I can learn it all on my own. (Get the point!)

    1. The same is true in many fields. Why do Professors get paid so much! I can look up all the things I want to learn on the internet.

      Actually, you always could look most things up nearly for free. There is a great movie line on this very topic: https://youtu.be/s8KZbov-mD8?t=169 But college professors are not in the “looking things up” business.

  12. Here’s the thing ladies and gentlemen, I’m an agent so I can tell you why we are useful and where that commission check goes. Most companies, not all, will charge a monthly due, that we pay regardless of whether we sold a home that month or not. We don’t get paid hourly, so yes our time is money. We have professional photos done of your home, we have flyers printed, host open houses and we host brokers open so that other agents with buyers can immediately tell if this is a home they will be interested in. And who by chance pays for these things?? Us. And if your a buyer, we actively check the market every day to see if that perfect home has appeared. Some homes don’t go on the mls, some opt to go on a private listing network which will make it impossible for you to find on any website and they don’t have a sign in the yard either. If your a fsbo unless someone drives by they will never know, your perfect buyer could be out there and never see your home because they haven’t driven down your street. Have you ever had to deal with a short sale? Its COMPLICATED, BANKERS ARE A PAIN IN THE ASS TO DEAL WITH. Speaking of pain in the ass, you have questions, we get you the answers, you need a roof inspected on new year’s eve in the freezing cold(happened when I bought my first home), we have a guy for that, water problems, we can recommend someone for that too. And yes, we tell people you need to lower the price and we have good reason to do so because most people think that their homes are worth a lot more than the are when you look at the market for that particular area. As for our nominal commission rate, well, let’s say 5% (it does vary) with my particular company, 2.5% of the 5% goes directly to the buyers agent, (you didn’t think they worked for free did you?) And of that now 2.5% that will go to me, anywhere from 30%-50% (depending on brokerage) will go directly to the company that holds my license and then I get the left over. Oh and since taxes aren’t taken out I have to make sure my accountant, that I pay, takes the appropriate amount out so that I’m not owing come tax time. Remember people, we have bills to pay too and just like you our time is valuable and if you wouldn’t work for free, why would you expect someone else too.

    1. Remember people, we have bills to pay too and just like you our time is valuable and if you wouldn’t work for free, why would you expect someone else too.

      I would not expect anyone to work for free, but then you have to wonder why real estate agents cost as much as they did 30 years ago in real dollars when we did not have databases, the Internet, and so forth.

      1. Due to the increasing costs of online marketing. Many top producers pay upwards of $25,000 month just for marketing. Sellers who try to discount agents believe that all a agent does is hold open houses and send flyers. Wrong. There are professionals who attain more then there commision cost, don’t just hire your cousin! A typical $100,000 home will cost the typical agent $300-900 just in marketing costs for 6 months if it sells or not. Whats the typical wage of a writer nowadays? Should be no cost considering anyone can do it.

      2. More information doesn’t necessarily mean it’s good information. For example the “zestimate” on the house for the founder of Zillow was wrong by $20,000!

      3. ” you have to wonder why real estate agents cost as much as they did 30 years ago in real dollars”

        I bought my first house for 59,000 in 1982. I don’t know how she lived making $885 on a sale (she had one side, based that on a 6% commission). Remember that is before her own Realtor fees and taxes. No wonder it was mostly married women working part time then.

      4. PS to my last answer to “why real estate agents cost as much as they did 30 years ago in real dollars”

        Because the cost of living has also gone up.

  13. First of all agents do not often earn $25,000 on a single deal. They also spend a large amount of time coordinate access for buyers and agents to enter a home, deal with title company, organize inspections, discuss issues with the lender, buyer, seller and title company and this can now go on for a single deal for 6 to 8 weeks . They earn their commission and if the buyer and seller have a full time job, they won’t have the time to deal with all the demands. It is a case of you get what you pay for. A licensed Texas agent is also vetted and you are not walking into a home with someone you don’t know anything about which is a safety issue.

    1. if the buyer and seller have a full time job, they won’t have the time to deal with all the demands

      I don’t think that’s true. I bought my house without an agent and it was not more difficult than buying a car. We met to sign the paperwork in front of a lawyer, and that was it. And this was years ago… it would be easier today.

      1. Hi Daniel,

        We like your thinking! We’re a California startup that lets homebuyers easily create their own offers, represent themselves in a real estate transaction and save the 2.5% commission that would have otherwise gone to their buyer’s agent.

        Check out our site (www.homesavi.com) and let us know what your thoughts!

        1. Funny, Home Savi even relys on real estate agents. “…constantly seeks to partner Home Savi with the best and brightest in the real estate industry and beyond.” So if the buyer can do it on their own with Home Savi, why does Home Savi seek the best and brightest in the real estate industry? The conclusion would be because they have the knowledge and experience and Home Savi also finds value with the best and brightest in the industry. So even Home Savi is not without seasoned real estate agents on their staff. Then why would a homebuyer not have a real estate agent represent them, especially when the seller pays the buyer commission. With Home Savi, the buyer pays but is self-represented. With a Realtor, the buyer’s agent is not paid by the buyer and the buyer has representation.

      2. There are always exceptions. Agents are paid for what they can take of when things go awry. Just because you bought a house or two and got lucky with zero complications doesn’t mean that is the case most of the time. Over the past 17 years I can recount numerous times when I was the cause of the sale closing. Each transaction is different, just like surgery you don’t know what’s going to happen until you open the transaction. If there are complications you better be prepared with a competent Realtor. It is ignorant to comment on a subject you don’t really know much about unless your involved every day in many different sceneries with different types of people. And don’t forget to mention the weeks and months we work for people and then never get paid because they change their mind or have a personal occurrence and cannot continue with a sale. Most people commenting have a salaried or hourly payment structure in their job. The reason Realtors still exist and get paid 6% is because we are effective. Some are better than others, just like clients.;)

  14. Daniel, one big factor is that realtors are a racket. They’re a licensure racket – the field is closed, by law, to people without a license. This is similar to taxis (and almost all of Uber’s regulatory headaches have been with regulators trying to protect the taxi racket).

    Look up the Institute for Justice’s fights for people trying to make a living against various occupational licensure rackets.

    Since both parties need to agree to not use realtors, and the profession is protected by licensure laws, we seem to have sticky prices. As others have mentioned, there are some bits of information and some processes that either require realtors or seem smoother with realtors. All these factors together is enough to keep them coddled at artificially high prices, just like psychologists, pharmacists (what do they actually do?), et al.

    They’re a powerful lobby too. For example, they always lobby against a flat income tax that would eliminate all deductions, including the mortgage deduction. (Intuit and H&R Block always lobby against the flat tax too, for obvious reasons.)

  15. Ive heard some good points here, but the fact remains the industry is closed to FSBO. Need flat fee or reduced vost MLS agent to get into MLS. So lets say list side is as low as $149.00
    The buy side must be put in so buyers agents will typically accept 2.5% and rarely lower. Realtor.com us great site, but they source only from MLS. So no FSBO on Realtor.com.
    Zillow caters to agents. So your FSBO listing has agent ads next to your listing. Owner is 3rd or 4th in list of contacts for Zillow. Bottom line the main sites MLS, ZILLOW, TRULIA and Realtor.com are the internet sources and they are highly skewed to the agents and MlS. Then you have buyers who dont see cost so why not use agent. Consequently if you want traffic and you want agents to include your property in their buyers list then seller must pay buyer agent a minimum of 2.5%.
    So overall the sell side is getting cheaper. The buy side went down .5%.
    By the way me experience with agents tells me 90% are not informed and the other 10% wont work for free. The industry is expensive to agents since they must split commission with broker and often pay a transaction fee to boot.
    My biggest issue is why a percentage? Why should agent get same percent for $150K, $300K, $500K and at $1Million and higher. The added cost to sell home to agent is not linear.
    I can get top flight pictures and video tour for $150.00 , at much better quality than most agents who useprofessional photographers. Bottom line traffic is generated by MLS and buyers use agents at no charge.

    1. The higher a home is priced the more photos you’re going to purchase, you may hire a drone, a videographer, virtual staging. Open houses for agents go from Panera sandwiches to sunset cocktail parties with champagne and a rawbar. And if the house doesn’t sell you have more sunset parties. While most buyers find the homes on the internet, you can still promote them and most sellers like to see the homes in print, hence, advertising $$ plus glossy brochures. The higher the home is priced likely it will take longer to sell also, especially if it is in an area like mine where a million plus home can be next to a $350,000 home. It’s great you can take good photos, I can’t spend my time photographing and editing and flying a drone plus servicing my listings and getting them sold. Thanks for your input though, I value everyone’s opinion. And you are correct 90% of agents are uninformed and I don’t work for free. 🙂

  16. The reason the internet has not killed the agent in Canada is primarily because of the monopolistic behaviour if the board. It does not publish or allow agents to publish sold data and other key data except in tidbits provided directly to a party in specific transaction. It has been fought in court for years and still going on. The moment that breaks, and it will, the internet will break the agency into smaller, fee for service parts that better reflect the need of the customer and the value. For now, it is an old guard industry in a zero sum game, favouring the membership and not the customer. Not much longer.

    1. Wrong, everything is published and in public view here. We get paid for what we do and what happens behind the scenes you can’t read about on the internet. For example what would you do with an A paper buyer whose loan falls through on the day before closing?

  17. In India Brokers are under Paid and humiliated by both buyer and seller…

    Finding home is not that easy task you need detail Knowledge of surrounding and market to offer best clear properties to buyer in india.

    Deal don’t happen every month for real estate agent in india but then also they are paid just 1 % of brokerage on resale properties deal Value…that also if you are lucky enough to get paid 1% brokerage from buyer or seller…people in india buy home worth crores but while paying just 1% brokerage to real estate agent they get heart attack.
    They don’t understand how real estate agent suffer and have own responsibility towards life.
    Many buyer and seller even don’t give brokerage after meeting each other.
    Hope RERA works brokerage fixed payout in interest of real estate agent
    And Safe guard there hard earned money.

    1. Open Door charges between 10-15% of the price they will pay you for your home. During the inspection they do their best to bring the price down even more with finding fixes and other reasons to pay you less. It is a sophosticated system for fixing and flipping homes. They say it makes it easier for you but ultimately you pay 10-15% “transaction fee” instead of a Realtor fee that is split between two. Please people, get ALL of the facts before commenting.

  18. Even though information are available in internet. Real-estate websites are showing half information and tempting to connect buyer to an agent. Those information does not help buyer to contact seller directly to do transaction.
    Every industry has adopted internet and defined new strategy to do online business. But, I agree some industry has fallen or disturbed due to internet.

  19. Total bs. I’ve seen more fsbo lose money on selling a house than any agent makes in commission. This article was obviously written by someone who doesn’t value an agent. I’ve never had a good experience buying a house from the owner. They can’t keep emotion out of it.

    If you’re going to sell your house and probably use a zestimate to do so….and are ok with it selling for 7% less, then why would you even assume the liability for less money? That’s dumb. I’ve NEVER Met a smart buyer from random calls on the internet.

    I can’t imagine how dumbfounded fsbo must be with the dippy randoms from on-line. Hell I won’t even show them. Anyone calling me and only wanting to speak to the listing agent about the house is stupid. “Hey….I want to talk to the SELLERS fiduciary”. Lol. Idiot

  20. Please don’t take this the wrong way, but you know about as much about how real estate really works as I know about computer science.

  21. A very good friend of mine called to tell me how proud he was of himself for buying his new home directly from the owner. Without the use of a realtor. Bragged so hard about how much he saved in commissions. A month later he called to ask me what he should do about the $45,000 foundation repair that the house needed that’s a seller neglected to mention to him. Sadly that $6,000 he saved in commissions didn’t even make a dent.

    More recently a man in my town closed on his great deal home that he got off Craigslist. Went over a week later to speak with the previous owner about vacating the premises and was met with a shotgun blast to the chest. Funeral services are pending. Once again the amount he saved by not using a realtor isn’t even close to what it cost him to not use a realtor

    1. A month later he called to ask me what he should do about the $45,000 foundation repair that the house needed that’s a seller neglected to mention to him.

      So had he gone through a real estate agent, the real estate agent would be funding the foundation repair or would have covered the cost of an inspection?

      I don’t think so.

      1. No, as his real estate agent I would have pointed out that suspicious 3-inch wide crack that the owner had filled with cement in the basement and suggested a foundation inspection.

        1. A home inspection costs a few hundreds, representing something like 0.1% of the cost of the transaction. If it were included in the cost of the agent, it would still account only for a tiny fraction of the agent’s commission but it is not even included in the fees.

      1. This is a typical scare tactic. Go through us, professionals, or else you are in danger.

        This makes a lot of sense a lot of time. However, there are limits.

        Your risk of death while buying a house is not going to be significantly reduced if you go through a real estate agent. This does not even need to be explained. Real estate agents don’t protect you from shotguns.

        In fact, there is no reason to believe that real estate agents are somehow less likely than the rest of society to commit crimes.

        One guy in South Carolina was pretty brutal:

        “A real estate agent in South Carolina is accused of kidnapping a woman who was found “chained like a dog” inside a metal storage container on his property — and may be responsible for the deaths of at least seven people, authorities said.”

        I don’t know why anyone would assume that a real estate agent is more trustworthy than a cab driver, teacher or carpenter. Right?

        I guess she wants to allude to the fact that, when buying a house, you have to ensure that the legal contract is binding and that the deed is indeed transferred. But real estate agents are not lawyers, this is a legal issue handled by lawyers.

        I would definitively recommend paying a lawyer when buying a house.

        House inspections should be done, ideally by someone who is *not* affiliated with a real estate agent. Real estate agents do not generally provide this service, and there is a good reason for that: if they did, the could be considered liable if you buy a broken house. But even if they did, the real estate agent is partial: he wins if the transaction goes through. Thus the real estate agent has a financial interest in getting a clean inspection. As the buyer, your interest is that the inspection reveals every little defect.

        Other people have made the point that many buyers do not want to have to deal with the sellers directly. This makes a lot of sense. It is a useful service to act as an intermediary. But the claim that the transactions is “unsafe” if it does not go through a real estate agent (but is supported by lawyers and house inspectors) seems silly on its face.

  22. Following this line of thought…

    Go straight to the farm to get your milk from the cow.

    Go to the automobile manufacturing plant to get your car.

    Go to the pharmaceutical company to get the medications you decided you needed by looking up your symptoms on WebMD.

    Go to YouTube to get instructions on how to extract your tooth.

    Go to OfficeMax yup buy the fill-in-the-blank form template to file for your divorce.

    Go to the Internet to find a FSBO home and purchase the biggest investment you’ll make in your life with the money you saved in your mattress (Why should you use the bank’s money? They did nothing to earn it.)

    Do it all on your own. You know everything because you have a pulse and a laptop. You got this, Sport! Good on ya!

    (Incidentally, I am a real estate agent. I close several transactions a month and work tirelessly 12+ hours a day, six days a week. I earn every penny I make. Which is NOT even close to 6% but specifically (on most occasions) 70% of 70% of 97% of 3% of the sales price minus my travel expenses, office expenses, photographer expenses, staging expenses, house warming presents, etc.

    With all due respect, only a fool represents himself in court.)

  23. Finally someone Finally wrote this to the public!
    Title Companies do All the legal work to protect you!! Not a Realtor!!!
    Stop paying Realtors you Equity. It is your money……

  24. It’s more similar to internet stock brokerages. Sure, a lot of people use them. But in no means has it gotten rid of financial advisers.

    You have oversimplified the home selling and buying process. A good agent will get clients better results. This blog, however, lumps all agents together. I can show you concrete examples where good agents have outperformed.

    As an agent, I fully admit that there pare also a lot of very poor agents in the USA. They give the entire industry a bad image. What we need are tougher licensing standards and minimum performance standards to maintain a license.

  25. Not sure if anyone has already said this, but it seems to me the reason estate agents are still thriving is that buyers want the reassurance of dealing with an intermediary who sites in an office when they are considering spending the amount of money they spend on a house. I’m pretty sure it is buyers who are driving the decision to allow agents to remain, not sellers. And of course it is not the punters who are paying them (unless sellers are effectively managing to pass on the cost.)

    The agents themselves use the internet more than any other medium now to draw the punters in, but the punters want to be shown round by a professional, not the seller.

    Whether this is sensible on the punter’s behalf is a tricky question. Having bought and sold a few properties in the UK and Spain over recent years I would say some agents have definitely earned their money and others definitely have not.

    Interesting that they get 5% in Canada. In the UK they get between 1 and 2.5%, depending whether they are sole agent or not.

  26. I have read through about half the comments to this blog. I apologize in advance if any of the following comments are redundant. But this blog and continued opinions to comments by the author are concerning.
    The internet has provided more accessible information on real estate but not all accurate information. And clearly from the comments I read, there are some major differences for agents and client representation in Canada, Europe and the US. In my conservative area in the US Midwest, commissions are 5-7% (yes, 7% paid often, split at 4% to listing broker, 3% to buyer broker). While the author of this article has the opinion real estate agents are not worth this percentage, the majority of consumers obviously see the value since they are contracting real estate agents and paying the commissions.
    I have not seen anything mentioned about the referral fees real estate agents pay out of “all” that commission. So on a relocation referral client to my broker that I handle, 40% of the commission goes to a relocation department/company. What’s left of that 3% is then split with my broker at my split agreement. Then my expenses (which others have mentioned in other comments) are deducted before I have actually earned anything. And don’t forget I still have to pay my 35% income tax out of that earned income.
    While there is more information available on the internet, it has caused more work for me. I often am having to show more detailed information from the MLS (facts), auditor, etc to disprove inaccurate information found by buyers/sellers on the internet. It’s interesting that the perception of real estate agents is that all we do is sell. That’s like saying all a surgeon does is surgery, or all an attorney does is show up at a trial. (Yes, agents are more like attorneys or doctors than travel agents or taxi drivers. Funny an insurance agent is not mentioned here.) There are always hours of background/research work that the average person does not do, even with all the available information on the internet.
    It would be interesting where the opinion on productivity came from. Is there specific data to back this up? Or is this just a perception from the outside looking in? In my opinion, this blog sounds more like opinion than conclusions based on facts. I would also challenge the author to get his real estate license and then assist consumers in listing their house or in buying houses in order to truly understand the industry and how things really work.
    PS And the real estate industry in the US works to protect consumers. The NAR has lobbied with the government to keep the mortgage interest tax credit for all homeowners. There is a bigger picture the average consumer doesn’t know or see.

  27. Real estate agents only deal with real estate agents. They own the MLS, and they box out for sale by owners. They get 85% of for sale by owners to give up and come to them, they monitor for sale by owners and pitch them. It’s market control.
    In the article it says what if I am off by 5%, well if you didn’t give 6% away to an agent you would still be ahead.

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