The Great American Real Estate Ripoff

If you sell your $300,000 home in the US or Canada today, you can expect to pay real estate commission of around $18,000 (i.e., 6%). However, if you’re fortunate enough to sell that same home in say the UK or Australia, you will only pay about $4,500 in commission. Have you ever wondered what the American home seller gets for that extra $14,000? After all, homes seem to sell just as easily in other countries as they do here.


The answer to the question, what does the American home seller get for that extra money is simple. Nothing. It’s con, a fraud, a ripoff. Chang-Tai Hsieh of the University of Chicago has another name for it: social waste. Whatever.

Economists are generally at a loss to explain why this ripoff persists in the Internet age with unrestricted access to home information, but I think the explanation is pretty simple. A long time ago someone got the idea that American home buyers are so clueless and scared about buying a home, that they should have a real estate agent help them AND the seller should pay for that hand-holding. Brilliant.

How much would a buyer’s agent make if the buyer had to pay? Nothing. We know that because in countries where the buyer is expect to pay for their own agent, there are almost no buyer’s agents. Hey, if a buyer has an extra grand in their pocket, it’s going to a bigger down payment on a nicer home, not to some real estate agent. If they have to pay for an agent themselves, somehow buyers figure out how to buy a home on their own.

To make matters worse, what’s become abundantly clear in this age of high tech home buying and selling, is that buyer’s agents don’t even need the commission that the sellers pay. Buyer rebates, where the buyer’s agent gives half or all of their commission to the buyer, are all the rage today.

Never give a sucker an even break

So, why do home sellers continue to pay for buyer’s agents who clearly don’t need the money? For the same reason Bob the baker pays Vito protection money: extortion. You see, the buyer’s agent may not need the money, but if you don’t offer it, they’ll work like hell to keep their buyer from buying your home. They call this little move buyer steering and according to some Yale economists, it’s very real.

Of course this is not a real estate industry problem, it’s a home seller problem. If I’m a buyer’s agent and a home seller voluntarily offers me money, I’m keeping it. So, what can a seller do to extricate them self from this decades-long ripoff? Alone? Nothing. If you put your home up for sale and request the buyer pay for their own agent, your home will likely sit on the market forever.

But, working in concert, home sellers together can put an end to it today. If all home sellers refuse to pay for the buyer’s agent, homes are still going to get bought and sold, just like they do in every other country where sellers don’t pay. Buyers still want homes, and whether they pay for their own agent or do it themselves, they’ll find a way to buy a home. And then the buyer’s agent’s commission will end up where it rightfully belongs: in the home seller’s bank account.

To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.

Will 2015 Bring Meaningful Change to the Real Estate Industry?

2014 saw a lot of new technologies and “aps” hit the residential real estate market with much excitement and fanfare. Some of them were even purported to help buyers and sellers. But when all was said and done, not much has changed.

problemHere is a list of problems in the real estate industry that all that technology did not do a damn thing to solve last year:

• We still have pocket listings
• We still have dual agency
• Lousy agents still expect the same compensation as good agents
• Commissions are still tied to the price of the home
• Sellers are still expected to pay for buyer’s agents
• There are still too many real estate agents
• It is still too easy to become a real estate agent
• There are still too many conflicts of interest between buyer/sellers and agents
• Sellers are still asked to pay for the buyer’s home warranty
• There is still buyer steering
• Agents still push their affiliated service providers onto their clients
• Contracts are still too difficult for the average consumer to understand
• Some MLSs still delay listings to the portals, limit the information, or do not send it all
• We still have minimum service laws

So, the question I want an answer to is this: will anything change in 2015? Probably not. All those problems cited above result in some pretty well-off operators in the industry, and none of them want to see anything change.

No, 2015 will be the same as 2014 and every year before that. Nothing meaningful will change in the residential real estate industry until the one group that can actually affect change does something about it. When buyers and sellers decide to stop being uninformed, lazy and fearful about the home buying and selling process, then we will see meaningful change. Until then, meet the new year. Same as the old year.

If you are a home seller and you are ready to sell your home a more intelligent way, that leaves more of your hard-earned equity in your bank account, visit ReaListing and help change the industry one informed consumer at a time.


To learn how to keep more or your hard-earned equity when you sell your home, check out The Intelligent Home Seller eBook and The Intelligent Home Seller eCourse.