People love to complain about realtors. Companies like Redfin have been trying to disrupt this market for years. People on HN and other places like to complain that realtors are pointless and that the only reason they exist is they are entrenched.
I posit a different theory, which may well be controversial here, and that is that realtors continue to exist--and charge large commissions doing so--because they provide a service that most people want.
I think of it like advertising. "I never watch ads" is a common catchphrase when decrying ads but again, ads exist because they work.
The job of a realtor, and what they are incentivized to do, is to facilitate a transaction. People might point out that a selling realtor isn't incentivized directly to get the best sales price. They are correct. Why show a house 100 times in the hopes of getting $550k when you can flip it tomorrow for $520k and your work is done?
Thing is: that's what most sellers actually want, even though they might say they want the best price. Most of them are selling for a reason and they just need to sell it and move on with their lives.
Likewise, when it comes to buyers, they too are buying for a reason, typically because they need somewhere to live or they want to establish (more) permanent roots in a given community. The best thing for most of them is to pull the trigger, move in and get on with their lives. It's not to get the best deal. It's not to wait 2 years for the perfect property.
Realtors facilitate both sides of this equation.
Have you ever deal with a For Sale By Owner? I have. I refuse. I won't even go and look at a listing FSBO. It's a nightmare. Those owners tend to be cheap (hence not paying commission), have unrealistic expectations of their property's value, overvalue whatever "improvements" they've done and, worst of all, are emotionally invested so they re more likely to take a lower offer personally rather than as a negotiating tactic.
It's worth noting too that with negotiating in general, it's often better to have someone else do it for you. If you're the guy who can say yes or no you have no fallback. If you represent that guy you now have the position of "my client won't accept that". Think about the psychological difference of rejecting someone personally or just being the messenger.
So add fixed-fee home sales to the other startup traps like dating sites, travel sites and anything to do with "fixing recruitment" (you'd be surprised how many cold call emails I get about this one in particular). Hell, let's add blockchain to that list too, but I digress.
This is dead on. The HN crowd that prefers to buy on their own based on objective measures and data they can find on a property is a tiny minority. Most people want and need human guidance in a complicated situation like buying a house.
The flip side of that is many non-US property markets function perfectly fine without people using buy side agents. Unless you're a large scale property investor you're not buying a property on objective data or insider information, you're buying it because you've visited it and several others within your budget, and this is where you actually want to be. Having someone with financial incentives as strong as the seller's agent to tell you that you're not going to find anything better and you don't want to negotiate too hard on price along for a commission-earning ride isn't that big an advantage, and you'll be paying separately for the legal advice and surveys anyway.
There's also an interesting aspect to a realtor that fills a guiding role. They're the person who helps turn seemingly intangible preferences into tangible search criteria (which can be executed by either party on mostly-public databases).
In fact, in the long-term, as jobs are automated, I'd expect people to spend more time, not less, on taste clarification. Then the pattern is to think about how all guiding roles in society will form to tools that automate the simple bits and let humans spend time doing what they do best. Imagine how much better it would be as a realtor to spend time in conversations inside virtual homes rather than sitting in traffic, navigating database searches, or fiddling calendars.
I was home-shopping recently, and every time I looked at a FSBO home and tried to figure out what the price should be, I got the overwhelming impression I had spent more time looking up comps for the home in question than the owner had. I ran into realtor-sold homes that struck me as priced high for the market, but nothing like the FSBOs.
I agree that there's benefit in hiring a broker when selling.
But I'm not as convinced that brokers are necessary when buying; at least to me, it seems like selling a house will often be more work than buying one. When selling, you need to advertise the house, show prospective buyers around, research the market to better understand pricing, etc whereas for buying it seems less time intensive overall, and easier to find some reasonable options, meet with sellers or listing brokers directly, and write a persuasive offer letter.
It may be a service people want but why do they almost all charge the exact same fee? The market would look less dysfunctional if they all competed on price as well as service.
I'm in the process of selling right now and I can assure you you are wrong. I got a realtor out of fear that I would be missing out on buyers simply as a punishment for not going through the realtor system. After getting astonishingly little value out of the realtor for what would have been an almost 10k seller fee, I fired them and I did a flat fee listing service, and I'm seeing about the exact same foot traffic.
I have still left the 10k buyers agent fee because you will DEFINITELY be blacklisted by the buyer side agents if you don't pay their fee. So basically I'm paying 10k in cartel bribes to get my house shown to people who could have easily found it on their own on zillow or redfin.
The only reason people are going through agents is out of fair of being screwed over by agents who will push them out.
I posit a different theory, which may well be controversial here, and that is that realtors continue to exist--and charge large commissions doing so--because they provide a service that most people want.
I think of it like advertising. "I never watch ads" is a common catchphrase when decrying ads but again, ads exist because they work.
The job of a realtor, and what they are incentivized to do, is to facilitate a transaction. People might point out that a selling realtor isn't incentivized directly to get the best sales price. They are correct. Why show a house 100 times in the hopes of getting $550k when you can flip it tomorrow for $520k and your work is done?
Thing is: that's what most sellers actually want, even though they might say they want the best price. Most of them are selling for a reason and they just need to sell it and move on with their lives.
Likewise, when it comes to buyers, they too are buying for a reason, typically because they need somewhere to live or they want to establish (more) permanent roots in a given community. The best thing for most of them is to pull the trigger, move in and get on with their lives. It's not to get the best deal. It's not to wait 2 years for the perfect property.
Realtors facilitate both sides of this equation.
Have you ever deal with a For Sale By Owner? I have. I refuse. I won't even go and look at a listing FSBO. It's a nightmare. Those owners tend to be cheap (hence not paying commission), have unrealistic expectations of their property's value, overvalue whatever "improvements" they've done and, worst of all, are emotionally invested so they re more likely to take a lower offer personally rather than as a negotiating tactic.
It's worth noting too that with negotiating in general, it's often better to have someone else do it for you. If you're the guy who can say yes or no you have no fallback. If you represent that guy you now have the position of "my client won't accept that". Think about the psychological difference of rejecting someone personally or just being the messenger.
So add fixed-fee home sales to the other startup traps like dating sites, travel sites and anything to do with "fixing recruitment" (you'd be surprised how many cold call emails I get about this one in particular). Hell, let's add blockchain to that list too, but I digress.