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Saturday, February 26, 2011

Buying & Selling A Home Is EXPENSIVE!!!

I was running some calculations on how much it is going to cost me to sell our home in Alexandria and buy a new home (in the price range we are shopping).   The Realtor market is going to get almost $200,000 from me for doing very little, but it is a cost of doing business these days.

Though I believe the market will adjust and fix the problem where realtors are not compensated correctly, it is going to take a long time for this to happen.   The reason it is going to take a long time is partially because the market is locked up and there is no way the real estate companies are going to give up any of their market share.   In a perfect competitive market you would see these crazy rates that realtors are being paid change, but the problem is the realtors that own the market are never going to let it change.

The only way something is going to fix this obviously broken market is for a major disruption to occur.  I am not talking about a market shift or even a change in the laws.  The only way the market changes is through some paradigm shift in the ways people buy and sell their homes.   Maybe the internet will help fix this problem, but until the sellers or buyers actually feel the pain when they have to pay 6% of their total home price to sell it, with zero performance incentives or guarantees, the problem will never go away.

The only way to fix this is to have the contracts written where the realtor is paid when the house is sold above the appraised (or market) price.   There should be accelerated payments where the realtor can make up to 40% of the incremental amount on the deal after the floor is hit.   For example, if our house is appraised by the city at around $1MM, the realtor will make $2,500 for being the realtor, and then for every $1 over the $1MM they make .25 cents.  For every $1 over $1.2MM they make .50 cents on the dollar.

- If we sell our house for $1MM, the realtor makes $2,500.
- If we sell the house for $1.1MM the realtor makes $27,500
- If we sell the house for $1.3MM the realtor makes $102,500
- If we sell the house for $2MM the realtor makes $452,500

This is a simple way to make the sellers agent work.  The buyer agent needs to work in a different way, but should also be tied to finding a home and getting the best deal. 

This video says it all!

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