Are Realtors Contributing to Rising Costs?

Someone was ranting about rising housing costs and blaming it on realtors. Here are a few digestible points which indicate my view on this matter (spoiler: realtors are incentivized to keep prices lower).

First, let's look at WHY a person might accuse realtors of over-inflating prices. Why would an agent want to do that? There are two reasons:
1) We have done a good job for our seller client if we can get a higher price for them - we look good!
2) Since commission is usually a percentage of the sale price, a higher price will produce a higher commission to the agent.

The first point shouldn't have to be defended; and as I'll explain below, it's a force that is balanced by having another agent representing the buyer.

And as for the realtor getting a higher commission from a higher price? It's only about $150 for every additional $10,000 in purchase price - it's not a real incentive.

So, let's look at what DOES incentivize an agent when they are dealing with pricing:

1) Obviously, if I'm working with a buyer I need to get the lowest possible price. The buyer will feel like I did a good job and that's good for my business. This is the mechanism that BALANCES the fact that there is a realtor representing the seller too, trying to get the highest possible price for them.

The person who was ranting about realtors driving up the costs - do they think that an agent on the buyer side is part of the problem? If so, perhaps they think that we are saying "Oh yes, pay that amount (*snort*) it's totally worth that much", as if that won't bite us immediately when the buyer's lender appraises the property. Or when the house next door sells for way less, or when the buyer asks us to list the home a year later and we can't explain why it's not selling for at least the same price. Conclusion: A buyer's agent wants a lower price.

2) So what about all the listing agents? Aye, they are using the dark arts of marketing - they whisper to the consumer: "You DESERVE to trade more debt for luxury" and the sheep head to the banks, and the realtors make $150 for every $10,000 price hike ... nah, I'm not buying it.

Consider the agent listing a house for sale. They are paid when (if) the house sells. A quick sale means less work for the agent, and they can move on to the next listing (paycheck). And if it's over-priced and doesn't sell quickly? The agent may never get paid, especially if the seller decides to try a different agent.

That is why realtors think it's laughable when we're accused of pushing prices upward. It actually makes things harder on us, without compensatory reward!

And finally - please remember that realtors are people too. We know that the rising housing costs are hurting people in real time. Many of us are also affected, or we have loved ones who are suffering. We want everyone to be able to buy a home (kaching)!

Posted by Gerry Thomasen on
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