This article was originally published on ETFTrends.com.
By Stephen McBride
Roughly $900 billion worth of real estate changes hands every year in America. For many folks, buying a home is the biggest decision of their lives.
What is the neighborhood like? Are the schools good? How far is the drive to work? Before the internet, we had to get the answers from a real estate agent.
You can now “do it yourself” on the internet. Disruptive companies like Zillow (ZG) and Trulia make it easy—and free—to research any house or neighborhood.
In fact, more than half of Americans now find their homes online, according to the National Association of Realtors (NAR). But closing the deal is a whole different story…
Sellers Still Can’t Get Away Without Real Estate Agents
The same NAR report found 9 in 10 buyers hire a real estate agent to craft and submit an offer. A Zillow study found less than a third of sellers who don’t use an agent end up closing a deal.
In other words, buyers and sellers can get to the “one-yard line” without much help. But deals rarely get done unless an agent is acting as a middleman. And if you’ve ever bought or sold a house, you know real estate agents take a fat slice for themselves.
The seller typically has to fork over 3% of the closing price to each of the buying and selling agents. If the same agent is working for both sides, they get 6%. They earn a $30,000 check for closing a $500,000 deal!
Now look, a great real estate agent should not be taken for granted. They arrange open houses, negotiate a better price, guide you through the legal process.
But in 2019, charging a 6% fee for connecting buyers and sellers is highway robbery. It’s no wonder real estate agents raked in $55 billion in fees in 2018! Research from the NAR shows the average agent closes seven deals and earns $50,300 per year.
That’s a pretty sweet gig. Sell one house every other month and you make an okay living in many parts of the country.
Why Realtors Still Charge Such Sky-High Fees
There are no rules against buying or selling a house without an agent. In fact, online platforms like Zillow have made it easier than ever to list your own home on the market.
But direct sales haven’t caught on. You see, real estate agents will sometimes skip showing your house to a buyer if the listing doesn't offer a full 5–6% commission.
In fact, a 2015 study found that homes offering a commission of less than 1.5% to the buyers' agents took 12% longer to sell. And they were less likely to sell at all. In other words, some agents blacklist sellers who don’t “play ball.”