One feature of the economy I’ve never understood is the huge transaction costs associated with real estate.
Real estate agents are, for the most part, able to hold commission. Six percent on a sale, split between broker for buyer and seller, is standard. During tough times when nothing is moving a seller may offer an extra percentage point to the buyer’s broker as an extra inducement to show the property. (No matter what your broker tells you they aren’t working for you, they are working for a sale.)
Nonetheless at the edges of real estate there are rebate offers. There are brokers who will charge you only 1% if you’re the seller, but of course you’re advised to offer the full commission to the buyer’s agent for fear that they won’t encourage their clients to look otherwise.
Discount brokerages aside, there are referral fee offers. Brokers will give credit to whomever refers a client to them. And like shopping portals, companies can make money steering clients by rebating a part of the commission to clients.
That exists in the real estate space… for real estate commissions, for mortgages, and even for moving companies.
Here’s a site offering United miles for all three.
When I bought a condo in 2006 I used a mileage-referral service to sign me up for a real estate agent. I didn’t have an agent I really wanted to work with, I’m mostly a do-it-yourselfer on those things. I didn’t actually like the person they sent me to, so I had the brokerage assign me to someone else that I connected better with. And I picked up enough points for a first class ticket to Australia for the purchase I was making anyway.
Of course you need to shop mortgages separately, the most important thing is rate and fees, the deals they give you through these sites may or may not be the best you’ll do. The miles, though, are just marketing expense — advertising — and I like to at a minimum investigate whether having the ad spending rebated to me will work out better than being persuaded by television.
Here are similar mileage offers — from the same company — to earn points with AAdvantage for the same activities.
Big financial decisions mean big miles. The days, of course, of churning refinances and home equity loans for hundreds of thousands of miles at the cost of a few hundred bucks is done, but if you’re actually doing real estate transactions then look for the best price — an agent who rebates part of their commission in cash or points, or who will charge you lower fees for instance.
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“Finance $200K for your “new home”” and get 25K Miles so that you qualify to have the 25K bonus. Well, we know receiving that $200K is tax free, but…
LOL.
ED.
Gary I agree. Recently, I’ve seen real estate agents claim that 7% is the “new norm”. Probably just a marketing tactic to make you feel like you’re getting a deal when they only charge you 6% “just this once”
Gary, I’ve been reading your blog for several years, and without your sound advice and wisdom my husband and I would never have afforded such amazing travels as we have taken the past years. I would like; however, to point out a couple of potential problems with your thoughts here since my husband has been a real estate broker/salesperson for 26 years. First of all, if you’d like to fully understand “the huge transaction costs associated with real estate,” just ask to see our budget 😉 Being self-employed means paying ALL of your own personal expenses in addition to ALL of your business expenses without perfect knowledge of future income. That’s why I need your blog to teach me how to travel in a style that is a bit more pleasant than it would be otherwise 🙂
Secondly, I personally couldn’t recommend picking an agent based on earning miles or getting a reduced commission. Getting the best price for a house should theoretically always be a better return on your money than free miles or a rebate. Your statement, “No matter what your broker tells you they aren’t working for you, they are working for a sale.” is not true of all. It does seem to indicate that you haven’t had the expertise of a great agent before. It might take a bit of research to find the agents who ARE going to work hard for you and not just for the sale, but they are out there. And the good ones are so good that they don’t need to reduce their fees because they genuinely earn them by getting you the most value for your money 🙂
I disagree, Jean. I think’s Gary’s statment that Realtors are working for the sale, not for you, is 100% accurate.
I’ve sold 3 houses and bought 4, all corporate relocations, and I’ve never felt that any Realtor I dealt with was truly looking out for my best interests.
It’s not their fault, it’s the structure of compensation. They get 3% of the sales price. If a sale falls through because the parties couldn’t come together on price, the Realtor gets nothing. I’ve rarely seen Realtors tell clients to turn down offers.
I’ve never used a discount Realtor service, but if the buyer’s agent doesn’t show houses with reduced fees, that tells you right there that they’re working for a sale. If they were truely working for their cleint, they’d show them the best houses regardless of their compensaton,
Personally, I think using Realtors is a needless 6% expense in the transaction, after you’ve been through the process once and understand how things work. You can find all the info for comps with a little homework; they don’t have access to information that you don’t. Everything is public record. I didn’t use one for my most recent purchase. Your mortgage broker/banker is the most important person in the process, in my experience.
Adam, I understand that you feel good about your real estate transactions and haven’t had to pay a real estate commission. And if that’s all you need, you’ve been successful.
However, not all information is public record or easily found even if it is. That new transfer coming into my area—does he/she know that a Costco has been approved for that nice horse farm next door but they just haven’t broken ground yet? Or that the unused train track behind the house could be put into service again at any time running 8-10 trains a day like last year? Or that the new septic system rules for that vacant land will mean an extra $20,000 more to put in than last year? Or that the builder in that neighborhood didn’t reinforce the basement walls properly when the homes were built 40 years ago? There is so much more to buying or selling a home than knowing the comps.
My husband turns down listings every month when he shows sellers how to get their marriage back together, or how to fix their finances without selling, or whatever it is they really need that selling their house won’t fix. He has helped single women go through boxes of unpaid bills before leaving the house without getting the listing. He spent hours last week trying to find assisted living housing for a housebound and infirm senior with no family or friends. Yes, this kind of help is extremely rare, but other agents like him are out there. It takes effort to find them. And they are worth every penny.
And that mortgage broker that is so important? They don’t work for free 😉
Jean,
All else being equal I’d prefer to work with a customer friendly broker like you or your husband. All else isn’t equal though, and I’ve yet to read a compelling case as a seller for why I should give $12,000 of my selling price to a selling agent. Compared to flat fee listings that get the house on the same MLS service everyone else uses I just don’t see the appeal, and I think Gary makes a lot of sense.