Why Do Real Estate Agents Still Exist in New York City?

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Save 6% in Broker Commissions When Selling: https://www.hauseit.com/agent-assisted-fsbo/

Very often we’ll receive Google search alerts about yet another ambitious new tech start-up promising to completely disrupt real estate brokerage. Usually, it will be a press release self-promoting another bold, young entrepreneur with zero real estate experience promising to become the Uber of real estate.

Yet despite all of this promised disruption, why do real estate agents still exist in NYC?

While innovation is to be nourished and encouraged, it can sometimes be taken to extremes in today’s start-up funding culture. Unfortunately for the investors of these start-ups, these so-called innovators have usually not bothered to fully understand how the real estate industry works before attempting to disrupt it.

The first brilliant idea most of these start-ups have is to create an eBay for homes. After all, if you can buy a car or a boat on eBay, why can’t you do the same thing with real estate?

The second bright idea you see over and over again is to create a discount, online real estate brokerage like ETrade.

We’ll explain why investors in both models are doomed and what to do about it.

For the entrepreneurs that have bothered to do some research, they’ll cite that 98% of today’s homebuyers start their search online on popular real estate search portals like Trulia.

If almost all homebuyers start searching for a home online, why do you even need a middleman? Couldn’t home sellers all just list their homes “for sale by owner” online and cut the real estate agent out?

What they fail to understand is that even though home buyers start their search online, they almost always end up working with a buyer’s agent. Among the 5,000 yearly real estate transactions in NYC, 90% of deals are completed between a listing agent and a buyer’s agent.
How does this happen?

For starters, one must realize that almost all inventory is controlled by listing agents. In NYC, over 96% of listings are for sale by agent vs 4% that are listed for sale by owner. As a result, as soon as a new home buyer starts searching online, he will invariably begin speaking with listing agents.

Now, remember that every listing agent is a potential buyer’s agent on another property. In case the home buyer isn’t interested in his listing, the listing agent will invariably pitch his services as a buyer’s agent.

This agent and every other agent the home buyer comes in contact with will explain to the home buyer that real estate commissions are always paid by the seller and that working with a buyer’s agent is free.

They’ll explain that the commission is a fixed amount regardless if the buyer is represented or not. As a result, the buyer will be throwing away free advice and representation by not working with a buyer’s agent.

“The commission is built into the sales price, so if you’re paying for representation anyway, why not use it?” is the common refrain from veteran real estate buyers’ agents.

It’s not difficult to understand why most home buyers end up choosing to work with a buyer’s agent. No one likes to throw away a service they’ve in effect already paid for.

Moreover, what first time home buyer will turn away free advice and guidance for the biggest purchase of their lifetime?

Moreover, real estate agents are collectively the biggest sales force on the planet.

There are 30,000 licensed real estate agents in Manhattan alone and over 50,000 in all 5 NYC boroughs. These agents will be friends you meet at parties and neighbors you bump into on the elevator.

These will be people you turn to for free advice before even beginning your home search. How likely is it that a home buyer will turn down free help from a real estate agent friend after learning that it’s a free?

However, the fact that most home buyers end up being represented by buyers’ agents is not good news for home sellers hoping to avoid paying the standard 6% broker commission to sell their home.

In order to engage the vast majority of buyers who are represented by buyers’ agents, you will need to offer commission to them in your local inter-brokerage listings database, commonly known as the MLS or Multiple Listing Service.

Why can’t a home seller just offer commission directly to buyers’ agents?

Because the offer of commission is not credible. The reason the MLS is so effective is because the offer of commission is automatically contractual.

In NYC where the inter-broker listings database is operated by REBNY and called the RLS, all member firms are required to sign a “Universal Co-Brokerage Agreement” before joining.

Hauseit LLC, Licensed Real Estate Broker
Tel: (888) 494-8258 | https://www.hauseit.com
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