Who pays to sell your house?

The "norm" for paying Realtors doesn't make sense. Apparently, I'm not the only one who noticed. So I ran an experiment for selling my house in San Francisco last week...

I just sold my house in San Francisco. It is the 9th time in my lifetime that I’ve sold a house, since I sold my first one in 1979. For the past 42 years, I’ve always wondered why real-estate fees were fixed and paid for by the seller.

That last thought is: If I’m buying a house, which I’ve done 12 times (still got three! 😳) in 40 years, how do I influence my realtor to do what I want? The fact is that he is getting his money from the seller, not me.

My lovely house, before it was staged & sold

Then I read this piece in Axios, titled “Showdown over real estate fees”. The point of this litigation: "the uncoupling of commissions, so that both buyers and sellers negotiate and pay their own broker compensation." Apparently, the question that has been rolling around in my head for 40+ years might end up being answered by the U.S. Supreme Court! Democracy never moves quickly.

But it’s a valid point, one that questions a really basic underlying assumption that has ruled the real-estate industry for decades, much like the really basic underlying assumption that ruled the distribution of automobiles (dealers exclusively franchised by manufacturers), until Elon Musk decided to sell his cars direct to customers. In real estate, there are no multi-billion dollar manufacturers to mess with the system; there have been hundreds of attempts to re-invent the model for buying and selling houses, including different listing services, different fee structures, and different business models, but still today the primary method for selling houses, more than 90%?, is through the local Multiple Listing Service, controlled by licensed Realtors© (you better remember that copyright mark, since Realtors are aggressive about protecting the mark!), who are also members of the National Association of Realtors.

I ran an experiment in selling my house. Selling a single family residence in San Francisco just as the pandemic appears to be coming to an end is suspenseful. People have been buying houses here for cash and paying higher prices, despite the pandemic. Would that last? Would it apply to a higher-end house? Would it apply to our house?

I’ve owned the house since August, 2008. I closed two weeks to the day before Lehman Bros declared bankruptcy on September 15. I’d bought the house (and have loved living in it for the past 12+ years!), but the thought occurred to me that I would never be able to sell it for more than what I paid, once the Great Recession got underway.

Fast forward: San Francisco real estate soared (after 2010), rising 90% on average from 2009 to 2019. I thought maybe I could get my money back, after all. But I didn’t spend any time thinking about selling the house until last fall. (We moved our primary residence to NM after the pandemic, and after I got COVID-19 “worse than Trump” last April.)

So I ran this experiment: I asked our Realtor, Ted Bartlett, to recommend a listing price, which he did: 15% more than what I paid 12 years earlier. Ouch. But one thing I know about myself is that I don’t know how to sell things. He does, so I pushed back and argued, but ultimately said okay, we’ll use your listing price for the house. On the usual structure: he would make 5% for his firm if he was both the listing and the selling agent. If another agent brought the customer to buy the house, they would split the fee 50/50.

My experiment was as follows: I offered to pay Ted 4% of the listing price, if he found the buyer; I would pay 5% if another agent brought the buyer, and they split the fee; and I provided an additional incentive for Ted himself by offering to pay him 20% of every dollar he managed to get over the listing price. The result: The house sold in three days with four offers over the list price and closed for $600k above the list price. Ted got an extra $120,000 on top of his “regular” commission. He’s happy. I got an extra $380,000 above the listing price. I’m happy. And it worked: I paid an incentive directly to the Realtor that produced the result I wanted.

Of course, the buyers (a lovely couple with two kids, a dog and tech-company jobs) had no control or influence over this transaction other than bringing the cash and trying to guess how to submit the winning bid. That’s the point of that suit that Axios reported on. Why is it that the system is tilted entirely in favor of the seller (independent of market conditions). Because that’s the way it has always been!

I’m not complaining….