Buying a home in the US is easy: you engage a real estate agent or broker, he or she sifts through the MLS and other proprietary lists of the association, shows you a few properties, holds your hand until you dole out the cash, and what do you know? All of these services are free to you. What a great bargain! Sounds too good to be true!
Until you want to sell, that is. Then payment time arrives with interest and penalty.
Someone is paying for all of these fancy real estate offices and big advertising, running of the MLS and carrying all the brokers on the backs of the agents and the scores of paper shufflers who move piles of important looking documents from here to there. That someone is you. When you sell a house in the US you are asked to pay 6% of the sales price into the combined ocean of money that carries the real estate professionals, their board and ecosystem. It works out to be maybe 100 billion dollars per year in residential commission only. No wonder the board is protecting its turf so hard.
For most Americans this sounds like a fair deal; why else are 91% of all homes sold using that system? Paying out $60,000 for a million dollar home, or even $12,000 for the average $200K home price, is the cost of having that system in place.
That system is a holdout of the old way of doing business when information was scarce, and the Internet is changing it and will continue to do so. Check the music industry to see an example, or check Kodak, or the old way travel agents had their secretive systems for finding flights and hotels.
Digitization of our lives is unstoppable and will change the way real estate business is done. When Facebook research tells us that every person is connected to every other person on Facebook within 4 “jumps” – that’s 800 million people you can reach with a friend of a friend x 4, the buyer of your home is 4 people away from you in your social network.
Here are the statistics, some of it directly gathered from the real estate association’s reports:
- There are about 100 million owner-occupied units in the US
- About 8% change hands every year on average (8M)
- 9% of these homes in the US are sold by owner every year (about 700,000)
- The average sale price of a home for sale by owner is around $150,000
- About 40% of these homes are sold by a referral from a family member, a friend or neighbor. It works out to about 300,000 homes per year.
The Association of Realtors are defending hard, of course. Here is a statement from their site. Read, and make your own opinion, but I find here just a sales pitch:
In 2010 for an arms-length sale, the median sale price through a Realtor® was $200,000 for new and existing homes combined, according to NAR’s 2010 Profile of Home Buyers and Sellers. The comparable FSBO price was $155,700. Avoiding the commission results in a sales price that is $44,300 lower than the $200,000 price that a Realtor® can help to obtain — a difference of 28 percent from the FSBO price.
Really? do you believe that? if so, then I have a bridge to sell you between Manhattan and Brooklyn. Really cheap.
Here are some links for further reading: