[quote=bearishgurl]
Fascinating, njosd, I’ll look up the book.
I stand by my assertion that buying a FSBO does NOT save the buyer any money. Therefore, I would surmise that eliminating commission would shave little to nothing off the the purchase price for the buyer.[/quote]
Possibly, the total purchase sum would always be what the market will bear, or as we have seen recently, what a fraudulent mortgage lender and borrower will bear.
But that is not the point. When the FSBO buyer later becomes a FSBO seller, s/he would also have no sales expense of 6% and get ALL the money back.
There is no way that siphoning off 6% of each transaction will get either buyer or seller as good a deal as they otherwise would have.[/quote]
Correct.
There are social and economic benefits that would accrue from making housing more liquid, too. Without the RE industry’s monopoly rents, it would be far easier for people to go where they can find work, etc.
But it occurred to me that thinking of a percentage the headline price is misleading. If you put $100k down on a house, pay your 5% fixed loan for the industry average 7 years, then sell the dump for a 20% nominal profit, what does that 6% do to your bottom line?
Let’s see what it looks like in round numbers (and stipulating that the seller pays commissions to avoid another side argument):
$35k in tax savings
+ $100k profit
--------
$135k
- $6k loan origination, other purchase costs
- $36k commission
-------
$93k net before other transaction costs
The commission will lower capital gains if applicable, but most folks will be rolling over into a new house so we can ignore it here.
So what happened? It kind of looks like Uncle Sam is giving you a break so you can pay your agent, for one thing. 🙂
Coincidences aside, it appears the agent sucked up over a quarter of your gains. YOU took all the risk, performed all the maintenance, etc., but the RE industry wants to be a junior partner in the venture for 26% of the action.
This is a favorable scenario, too. If the house only went up 10% in the same period–quite likely–then You’ll be asked to hand over about two thirds of my profits. Who’s the junior partner now?
I’ve ignored maintenance, property taxes, inflation, etc. to counter any arguments along the line that “you have to live somewhere so you would have been spending the money on rent anyway”.
So, that 6% assumes a little bigger role than it appears. I’ve never seen it explained this way before, but I’m sure someone has done a more complete analysis. I’ll go look for one to see how I did.
