The Real Estate Scam

Author: dylancatlow ,

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  • dylancatlow
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    [This really belongs in the society section, but it's so empty that I would feel a little silly posting anything in there]. 

    I’ve recently learned, with a fair bit of research, that the real estate industry is essentially a giant scam. It turns out to be possible in this degenerate American economy for an entire multi-billion dollar industry to thrive off screwing over their customers, and for the victims to come away feeling good about their "investment", blissfully unaware that no useful service was even on offer.

    In exchange for the standard 6 percent commission fee realtors take upon successful sale of a home, typically amounting to 20-30 thousand dollars, they will have spent something like 10-20 hours meeting with the client and filling out legal forms, researching home prices, and hosting open houses, the main “benefit” of which (they forget to tell you) is their own self-promotion. Since a good year for them is one in which they sell 10-20 homes, this means that they only “work” for 200-400 hours per year at most. The rest of that time is spent on self-advertising, on clients who will walk away before completion of the sale, on more or less pointless research they hope will give themselves a slight edge, and on busily competing with the countless other realtors trying to grab their own share of the loot.

    Saturation of the real estate job market is really the only thing preventing realtors from earning millions of dollars a year. However, despite all the free money being thrown at them, the job market is not so saturated with realtors as to make it impossible for them to earn a decent living. The main reasons for this are: a realtor cannot have another job, must have an office and look official, cannot operate without a government license, and do in fact have to work hard finding clients, answering their questions, and keeping them satisfied.

    The only truly crucial service they perform is handling the contracts and government forms. But this can all be taken care of by a real estate lawyer for a flat fee of a few hundred dollars. The other main aspect of their job, settling on a home price, can easily be taken care of by the client himself. Not only can the client take care of it himself, but by leaving this task to the realtor, whose main concern is sale of the home at any price, he is only asking to be screwed over. Since realtors earn most of their income through commission, simply getting a home sold is their top priority. For the owner, getting their home sold at a higher price may mean tens of thousands of extra dollars, while only bringing the realtor a few hundred extra in commission. This explains why there are numerous studies showing that realtors tend to leave their own homes on the market much longer than they advise their clients to. Far from incentivizing realtor’s to get their client’s the best deal on their home, the payment model ensures that realtor’s will do the opposite, pushing clients to accept bad deals if only so the deal will go through.

    The scam works so effectively because the average person does not know, off the top of their head, how to sell a home without the help of an “expert”. And since selling a home is the biggest financial decision they’ve probably ever made, consulting with an expert seems like a no-brainer, even if it means forking over half a year’s salary to be told that the right home price is some arbitrarily-chosen point within the home’s relatively fixed price range. After all, they’re already spending so much on a new home, what’s a few thousand on top of that?

    It is important to realize that the flat 6 percent fee Americans pay is much higher than in some other Western countries. In France, for example, 50 percent of sellers do not even use a realtor, and in the UK the usual rate is around 1-1.5 percent.

    Don’t be throwing away a car’s worth of money every time you move just because it’s become standard procedure in this country.