I also find the realtor system to be poorly aligned with the best interests of their clients. But ... is it a cartel?
On the one hand, yes, brokering these transaction is limited to a specific group. But getting into that group seems not that hard, and lots of people do it.
What makes it a cartel is their control over supply and demand. It's really hard to buy or sell a house without dealing with them, because inevitably one of the sides of the transactions has a contract with them, because of they way they require exclusivity.
- sale by owner without a realtor is a thing (at least many places?)
- all you need to do to be "them" is take a test and get a license, right? I.e. if as a buyer willing to pay 6-7 figures for a home, the cost of getting that license is negligible. If you wanted to recoup the buyer agent commission, you could represent yourself and do so.
Like, you also need a license (or multiple) to operate a restaurant, and it's really hard to do a prepared-meal-for-money transaction without one side of the transaction being such a license holder ... but we wouldn't in general say that restaurants are a "cartel" in virtue of this fact, because there's healthy competition.
> sale by owner without a realtor is a thing (at least many places?)
Realtors are not allowed to help you buy FSBO properties. If you have a contract with a buying agent (which most will require) then you can't buy an FSBO. So basically you have to choose -- get access to the 97% of listings that are done by Realtors, or the 3% that are FSBO (and get no help with it).
You also can't buy a house listed by a Realtor without your own Realtor.
That is why it is a cartel. Because the monopolize the listings and then refuse to work with anyone not in their system.
And it's not that easy to get a Real Estate license.
To your restaurant analogy, imagine if you could only eat in a restaurant if also owned one and had a restaurant license. It would be similar to that.
The MLS system they run certainly is a cartel. There's all kinds of rules that you have to play by that prevents competition if you want to be able to read MLS data.
A real punishment would be destroying their business, returning money illegally gotten to individuals profited on, and opening up criminal proceedings on cartel and monopolization.
But no, here's your slap on the wrist. And they'll just make a 10x more convoluted plan that does the same.
Why is it allowed? Cause "they're too big to fail".
A good sellers agent with experience will stage your home for sale to get you the maximum possible sale price. For sale by owner is definitely an option, but it’s kind of similar to being your own lawyer.
A good buyers agent won’t pressure you into any purchase and may end up showing you at least a dozen homes and can give you advice on bidding / actual value of the home, and can identify issues with the house before you’ve bid.
The key is that they’re prioritizing the long term network effects of being well recommended. Our buyers agent was great and I’d recommend her in a heartbeat. She definitely saved us from a couple of potential disasters, and from overbidding (likely saved us low six figures all things considered).
But obviously there are a lot of agents that prioritize turnover rather than actually helping you. You definitely have to either judge them carefully or get a positive recommendation from someone trustworthy.
I agree that a good realtor can provide a lot of value. But the amounts of money involved are crazy. Much too high. The average sale-price for a house in my neighborhood is about 1.4M these days. At a standard 3% commission, that's $42k each for the buyer's realtor and the seller's realtor.
Yes, they both provide value. But $42k of value each? At that price, they only need to sell one house a month to have a $500k gross income. And they definitely aren't doing a month of fulltime labor to close my sale.
I think that $15k is probably fair for the amount of labor that a realtor provides. But the whole realtor system really is a huge predatory monopoly, and they are squeezing too much money out of the market. And now they're starting to get to the "find out" part.
They're not actually getting $42K out of that transaction as someone pointed out in another comment.
30% goes to the brokerage, 20% goes to taxes. Add NAR fees and team split, and the real estate agent is getting maybe 25-30% of the commission. So at the end of the day they are pocketing ~13K (versus 42K).
It is fair to ask whether the brokerage deserves their 30% cut.
The housing market is currently under supplied, and has been for ~ a decade, and while higher interest rates are showing some progress, it's still a sellers market.
In a sellers market, with competitive bids, over asking, and sometimes sight unseen / waiving inspection, (and in 90% of markets unfurnished) -- staging is the equivalent of lipstick -- and in correlation to this case, much less meaningful than realtors blacklisting FSBO/Redfin/Zillow listings.
That’s the real issue. We’re capitalizing professional services at insane scale for little value.
Compensation isn’t in line with value, and the cartel nature of the business puts a lot of friction on the pricing.
This isn’t unique to real estate. A lot of sales guys are driving Porsches based on earnings of questionable value. The difference is your Oracle salesman doesn’t have a monopoly backed by state law on blowing hot air.
