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sdrealtor
ParticipantLegal issues are not as rare as you believe. When they do occur they are very very expensive. This is one small piece of the puzzle. there are many, many more. Believing that you understand this industry and how it will change is very naive. I wouldnt pretend to understand the inner workings of your industry, it’s funny that you think you’ve got mine all figured out. I sure don’t!
When you make investments do you try to match the market returns or do you try to do better than the market? My clients consistently do better than the market because of my local knowledge and experience. You could buy any home. You can hire a housewife that works P/T for ZipRealty, I know several. Personally, when I make major investments, I look for the best counsel I can find. When you buy your next home will you be satisfied with any home or do you want to get the best one you can get for your money and one that will beat the market returns?
Participantbgates,
There is a cost to putting all that information online and those were just a few examples. What keeps these parties from putting this information online is the expense of doing so and the liability of being wrong or not up to date. I’m sure there are lots of good books about St Andrews gold course in Scotland but if you went there to play and were spending alot of money to play there wouldnt you hire a local caddy?ParticipantPC,
Do you really know that realtors were doing fine 5 years or are you full of BS? Most did not get a 100% raise and most are doing less transactions per year. 5 years ago when prices were lower, there were a lot fewer Realtors and the cost of living around here was alot lower. Get rid of half the realtors, lower the prices by 50% and the cost of living around here will still be 20 to 30% higher here than it was. 5 years ago you werent asking us to invest thousands of dollars in new technologies to save you money.I’m not asking you to understand how brokers are not profiting. The cost of doing business has skyrocketed for every industry. Everyone and their mother has a RE license these days though most dont know what to do with them. The industry is hurting big time and it will only get worse. The big money was made by lenders not realtors during this boom.
ParticipantPC,
There are and have been plenty of other ways of doing business. They havent taken hold because they arent profitable. Take a guy like SD Realtor. Based upon his business model (1%) and the volume he’s doing, he’s generating at the top of end of what I estimated a good realtor nets. He charges 1% but makes it up on volume. He pays all of his own expenses and has no broker to share anything with. All expenses are his own and all liability is his. One $100,000 judgement against him that is not his fault in any way but for which he is held liable and he is wiped out. If you are the second $100,000 judgement against him, you are likely SOL. He takes a big risk and probably works very hard for his money. I have no doubt that he does a good job for his clients. His bottomline is no better than a mid level engineer’s salary (which i believe he is), his expenses are much higher and he works more hours. nights and weekends. Do you envy his position?ParticipantThat was the realtor side. If you look at the brokerage side which gets the 30 to 50% of the commission you will find that it is barely above breakeven. Based upon what I have heard from management and colleagues, less than 10% of the offices at the big full service brokers (Prudential, Coldwell Banker, ReMax, Century 21) are generating any profits. Next year, it is doubtful that any of them will.
ParticipantJES,
Lets take an average transaction of $600,000. Average fees these days are about 4.5 to 5% not 6%. That gets split in half with 2 to 2.5% going to the listing agent and 2.5% going to the buyers agent.That is $12,000 to $15,000 for each agent. The broker the agent works for typically gets 50% to 30% off the top leaving $6,000 to $10,000 for the agent. The average agent does 2 to 4 transactions a year while good agents do 8 to 12 transactions a year. There are a handfull of top agents that do more than that (maybe 5 to 10%).
So a very good agent working their tail off earns $80,000 to $120,000 in gross commissions. These are the folks you see providing neighborhood updates every month who have been doing so for the last several years or longer. They are the names and faces you recognize if you have lived somewhere along time. Health insurance for a family runs close to $10,000/year. Out of pocket expenses run $10,000 to $20,000 a year. Liability insurance, MLS fees, license fees etc add another $5,000 a year. Both sides of SS is around 12%+. Combine a 60 hour plus work week with nights and weekends. Bottomline is they are making the equivalent of a job paying $50,000 to $70,000 and taking the risk of earning NOTHING! Does that seem like a lot to you for someone that is very successful at doing something they have been doing for 10 years?
If you assume prices fall by 30%, they will take a paycut of $25,000 to $35,000 and will then be netting $25,000 to $35,000 before taxes if they are successful. Does that sound like a job you want?
ParticipantJES,
I know you would like to pay $500 for advisory services but no one will be able to offer them and earn a living for that. Who is going to take the liability of advising someone on a huge transaction for $500? One lawsuit (which are very common) and they would be wiped out. It’s easy to think this is simple but it isnt. The profits you think we enjoy just dont exist. A few at the top make big bucks as they do in most industries but you grossly underestimate the real costs of doing business in RE brokerage.I do agree there are too many realtors and 50% should disappear IMHO.
ParticipantPC
“sdrealtor has a point that certain transactions are complicated. However, the vast majority of transactions are straight forward.”
The problem is that you dont know which kind of transaction you are involved in until it is too late. Seemingly simple transactions end up in arbitration every day. I’m not arguing that this is brain surgery, it isnt. However, it is not as simple and NOT as profitable as you think.
I would venture to guess that there are considerably more engineers, stock brokers, car salesman, plumbers etc. earning 6 figure salaries than Realtors. Furthermore, if you took the average after tax earning of realtors that get no benefits, pay both sides of SS tax, all their expenses and only get paid if escrow closes you would be very underwhelmed by the figure the saw. The vast majority (80%+) would make more money working at Target.
ParticipantSome phones calls to heirs is not labor intensive? How about several dozen phone calls to heirs that are not on speaking terms with each other and have diametrically opposed viewpoints? I would estimate that I make over 500 phone calls during the typical escrow. Valuable knowledge about properties comes from spending hundreds of hours looking at homes, researching neighborhoods, talking to agents, neighbors, clients, builders etc.
It is easy for someone on the outside to look at what we do and say this is an easy business. It isnt and the failure rate is among the highest in any industry. Success in this business is the result of hard work and carefull planning. While many are failing and losing interest these days, the good agents I know are working harder and growing market share. Sure there are lots of newcomers that jumped in for an easy buck. But the business is returning to normal and going back to the way it was. Good, honest hardworking agents will do well and will get paid what they are worth. Mediocre agents were always overpaid and will vanish as the size of the pie shrinks.
ParticipantLindi
I’ve taken more than a few showers in my life but that doesnt make qualified or extremely knowledgable about the process for manufacturing and selling shower curtains. Something as simple as a commodity like this has many complexities which I have no clue about.ParticipantPeace,
The numbers will never be publicized. It will be spun as some great news but those in the know will easily read between the lines.ParticipantI agree with JES that alot could be done more efficiently but that is not necessarily the value you get from agood Realtor. The profitability just isnt there and if the margins get cut substantially you wont have quality people willing and able to do what is really valuable.
Does the Internet call the 3 different heirs in 3 different time zones to explain the offer and deal with the emotions of selling their parents home? Does the Internet explain why a certain location or floorplan has held its value better than others? Does the Internet know the soil conditions a neighborhood is built on? Does the Internet know that the kids on the street have been redistricted to a different elementary school four times in the last 5 years?
If you were buying an investment it might be a little more realistic but buying a home is extremely complicated and very emotional. I can say almost without exception that every buyer I have worked with has bought something completely different than what they initially told me they wanted. Most of these changed their mind based upon information they got from me and are extremely grateful that they had someone capable of pointing them in the right direction.
I spoke with client this morning that almost bought a 1300 sq ft house with high HOA and Mello Roos fees they found on the Internet last year for $650,000 which now would have trouble selling for $575,000. The Internet lender was going to put them in an option arm. They now live in a home over 2000 sq ft with no fees and a comparable property just sold for $50,000 more than they paid. They love their home and got a fixed rate mortgage from someone I referred them to. I think they might be inclined to disagree with you.
ParticipantAll of it. Last time I checked there wasnt any such thing as a RE selling machine.
ParticipantThe business model does not work because RE brokerage is very expensive top operate. You cannot support the business with 1% and never will be able to. The business is being sold because they arent making money, never will and need an exit to save face with prominent investors. My bet is that the acquirer will essentially takeover the debts of the Ipayone with very little if any cash exchanged. There are lots of deals like this going on. I spoke to a manager today at one of the largest brokerages in town. They have over 30 offices and only 3 are squeaking out meager profits.
PC, I dont disagree that alot of RE can go online but that doesnt mean it can be done profitably for alot less than it costs today. Every home is unioque and presents unique challenges. In contrast every pill in the bottle better be identical and there is virtually no difference between seats on a plane in the same class of service. RE is a labor intensive business and always will be.
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