Comission question

[HGNY]

After years of renting in various cities, I'm finally looking to purchase a place in Manhattan. One thing that is annoying is the lack of MLS. On the bright side, I am looking at high end 2BR/3BR properties so most of the listings are in 3 or 4 agencies.

I've contacted one agent a friend recommended at one of these big agencies and she sent me back a bunch of listings which fell into two categories 1)different location than I wanted 2)I had already seen.

So far, this hasn't made me enamoured to agents and their value. In many areas, you can get discounts from brokers (or 'rebates'). I'm wondering if people have had success with that in Manhattan. I'm thinking about saying I will normal commission upto $X and 1/2 commission beyond $X. This guarantees they make a decent amount of money.

There are enough agents in this city and I've yet to see evidence they are doing more than I could do with web tools.

Another option is just get a real estate licence. It is pretty cost effective and then you don't need broker. I have friends who have done this in other cities.

[Front_Porch]

Actually, there is effectively an MLS in Manhattan . . . most of the big and little firms share computer systems driven by the same database. I see 99.9% of what Corcoran sees, which is 99.9% of what Halstead sees, etc. And because the Times has such a lock on the advertising market, what you see on www.nytimes.com as a consumer is pretty reflective of that.

So unfortunately, the prices you see on the web are the prices that there are. If your agent is sending you stuff outside your price range, it's possible that your agent is an idiot, but it's more likely that your price range is too low. Prime downtown 3-BRs are selling for $2M-$4M at this point; uptown's somewhat cheaper.

And while every commission is negotiable, it's a small percentage of that overall purchase price. (Especially if you're the buyer, because you don't pay and can't negotiate away the commission of the seller's agent).

If you're looking at $4 million apartments and want to get your real estate license to save yourself twenty thousand bucks, I say go for it. In my experience, my clients who have 4 million bucks find their time more valuable than that; that's why I have a job.

I'm sorry apartments are so expensive, and I'm sorry your agent sent you the wrong stuff, but it's unlikely big bad real estate agents are the main source of the problem. This is one of the greatest places in the world to live, and lots of really really rich people know that. That's the problem.

ali r.
{downtown broker}

[HGNY]

Thanks. Nice to hear a reasonably reply from a broker/agent.

True about MLS. I guess the difference is that the database is more open in other areas.

My price range is not the issue. I'm confident of that. I _suspect_ she is just trying to show that she can finds things elsewhere in either an effort to impress me or slowly nudge me to open up the neighborhood a bit more. However, this is a new relationship so I will give it some amount of time before I go looking elsewhere.

I agree that the comission is a small percentage of the cost but percentages do add up. For me (and actually some friends), it is more the feeling that the agents don't provide any real value. If the agent basically shows me things I know about already and tells me about things I can readily (and have already) researched on my own, they don't seem to provide the value. On a $4M+ property, if I go get my license, I would save more like $120k($4M*.03) . Assume it takes 90 hours (classes, commuting, studying, tests), that works out to $1300/hour and I get to learn something which is an added bonus. It does make economic sense.

As a buyer, the normal when the discount is handled is as a rebate from the buyers agent although getting it chopped from the selling price is probably simpler from a tax perspective (I'm not sure of the tax issues on a rebate).

I'm not actually that upset with real estate prices here. It is still cheaper than London. I'm more unhappy with the system where I need to pay people who don't seem to provide value to me.

So, I guess the question is: What is the value that an agent provides to the buyer in the modern age when I have access to lots of data?

Once again, thanks for your reasonable reply :)

[Front_Porch]

It's unlikely the buyer agent commission on a $4M property will be 3% -- the %s do tend to come down as asset values rise -- but let's agree you will save yourself a bundle. Plus, think of the crossword puzzles you can do in those 45 hours of class time. (I am licensed in both NJ and NY, and found NJ's rigorous classes quite interesting, and NY's to be a total waste of time).

I truly believe people who want to do real estate buying and sellng themselves should. The analogy I tend to make is that I'm not a lawyer, but I did my own prenup over the Internet.

But to run with that analogy, there are things I do pay my lawyers $350 an hour to do -- like set up my LLC. It isn't that I couldn't have done that by myself, I just thought it was an important financial transaction that a) someone else could do quickly; which would b) save me some hassle in figuring out what was best for me; and c) I wouldn't have to do a bunch of boring paperwork; and d) the bases would be covered if something went wrong.

So where's my value to my clients? Primarily, as a personal shopper: they get to know me, then they trust that I'm going to comb through Manhattan/Brooklyn, and limit their options to five fabulous ones.

For this reason, I have busy clients (like celebs or lawyers) or people who want my city-specific expertise (like relos).

Secondarily, I do all the stupid paperwork. I went to Harvard, I'm kind of anal, and I do beautiful, bulletproof co-op board packages. If you want into a specific elitist building, I'm a decent shot to get you in. If you're in competition with other bidders for a place, I'm a decent shot to get you in. Is that service worth three figures an hour? It is to some people.

Tertiarily, (and more important to condo buyers) I protect my clients in ways they can't protect themselves. For one thing, most people can't negotiate well for themselves. Even if you're a professional negotiator -- let's take my client who is a pretty sharp tack and just sold his company for eight figures -- it's better to let someone more dispassionate conduct your negotiations for you. Also included in this level of service is warning clients about mice or leaks or whatever is going to ruin their enjoyment of their move in six months. I don't catch everything, but I catch a lot more than they do.

I'm gonna stop now, because this already sounds a little more "vote for me" than wiredny usually encourages . . . but I think you see the point. The transaction is money for service and expertise, and if you don't need those things . . . I look forward to your joining our fabu profession!

ali r.
{downtown broker}

[ManhattanKnight]

One of my friends bought his first apartment (a coop) in NYC a few years ago. He entered into the transaction without having his own RE agent, and, largely for that reason, endured one horror after another because of the absence of reliable information about either the sellers or the building.

Not long after he signed the contract for the apartment, one of the two sellers filed for bankruptcy. Even before that, the coop board rejected the sale. My friend has a physical disability (uses crutches), and felt that during its interview with him, the board had asked him legally improper questions involving his disability ("Are you sure that you can handle those steps?" "How would you get out if there's a fire?"). He sued the board in Federal Court on grounds of unlawful distrimination and won.

After a couple more years in the Bankruptcy Court, the sale finally closed. And that's where the real problems began: serious structural problems with the apartment and building (no one thought to get an engineer's inspection pre-closing); major problems with the building's finances resulting in, among other things, a special assessment within a month after the closing; the discovery of a long history of jealousies and battles among the residents and the board; and the board's refusal to let my friend place any furniture on his 1,200 sq. ft. roof terrace.

This on top of the board's requiring my friend to put up a deposit to cover 1 year's maintenance, even though he paid all cash for the apartment, is the beneficiary of a large trust fund, and had his obligations guaranteed by his mother.

I'm confident that a RE agent with a good knowledge of this building would have said to my friend "Run, run, as fast as you can!"

[BrooklynRider]

You can also look at a listing of For Sale Buy Owner's lists and that saves both you and the seller on agent fees (sorry Ali).

[Front_Porch]

You can also look at a listing of For Sale Buy Owner's lists and that saves both you and the seller on agent fees (sorry Ali).


No need to apologize -- one of my points is that agents are most valuable to customers who want to use us. It's a big enough tent (or should I say "XXX mint sundrenched tent"?) for both me and FSBOs.

ali r
{downtown broker}

[BrooklynRider]

... It's a big enough tent (or should I say "XXX mint sundrenched tent"?) for both me and FSBOs...

That was my laugh out loud moment today. Thanks.

[rsupreme]

Actually, there is effectively an MLS in Manhattan . . . most of the big and little firms share computer systems driven by the same database. I see 99.9% of what Corcoran sees, which is 99.9% of what Halstead sees, etc. And because the Times has such a lock on the advertising market, what you see on www.nytimes.com (http://www.nytimes.com) as a consumer is pretty reflective of that.

So unfortunately, the prices you see on the web are the prices that there are. If your agent is sending you stuff outside your price range, it's possible that your agent is an idiot, but it's more likely that your price range is too low. Prime downtown 3-BRs are selling for $2M-$4M at this point; uptown's somewhat cheaper.

And while every commission is negotiable, it's a small percentage of that overall purchase price. (Especially if you're the buyer, because you don't pay and can't negotiate away the commission of the seller's agent).

If you're looking at $4 million apartments and want to get your real estate license to save yourself twenty thousand bucks, I say go for it. In my experience, my clients who have 4 million bucks find their time more valuable than that; that's why I have a job.

I'm sorry apartments are so expensive, and I'm sorry your agent sent you the wrong stuff, but it's unlikely big bad real estate agents are the main source of the problem. This is one of the greatest places in the world to live, and lots of really really rich people know that. That's the problem.

ali r.
{downtown broker}

Impossible to negotiate away the seller's agent commission? Is this just in NYC? I've heard of other markets where, going in without a buyer's agent, the buyer was able to negotiate away part of the seller's agent commission because they agreed to just take the piece of the pie that would have gone to the buyer's agent, had there been one.

BTW, what House were you in? ;)

[narikin]

You can also look at a listing of For Sale Buy Owner's lists and that saves both you and the seller on agent fees (sorry Ali).

like which web sites in NYC?

[Front_Porch]

Impossible to negotiate away the seller's agent commission? Is this just in NYC? I've heard of other markets where, going in without a buyer's agent, the buyer was able to negotiate away part of the seller's agent commission because they agreed to just take the piece of the pie that would have gone to the buyer's agent, had there been one.

BTW, what House were you in? ;)

Adams. Go eat somewhere else.

And you?


As far as commission negotiation, who knows? Jon Miller of Miller Samuel, who is sort of as impartial a guru as we've got even though he does a lot for Elliman, has the average negotiability (the discount off list price that actually gets paid) as running around 5% in NYC now. So if you go in with an agent and you pay 5% off list, is your agent a genius negotiator, or does he just have a pulse?

Conversely, if you go in without an agent, and you pay 5% off list, did you brilliantly negotiate away "buyer's commission" or was that built into the price in the first place?

ali r.
{downtown broker}

[rsupreme]

Adams. Go eat somewhere else.

And you?


As far as commission negotiation, who knows? Jon Miller of Miller Samuel, who is sort of as impartial a guru as we've got even though he does a lot for Elliman, has the average negotiability (the discount off list price that actually gets paid) as running around 5% in NYC now. So if you go in with an agent and you pay 5% off list, is your agent a genius negotiator, or does he just have a pulse?

Conversely, if you go in without an agent, and you pay 5% off list, did you brilliantly negotiate away "buyer's commission" or was that built into the price in the first place?

ali r.
{downtown broker}

I think all the Houses have better food now than when you probably were around. I was in Eliot.

I've heard 5% as well.

So you think 20% off is too low to start? I'd agree, but in general, would you say 15% is okay?

[Front_Porch]

I think all the Houses have better food now than when you probably were around. I was in Eliot.

I've heard 5% as well.

So you think 20% off is too low to start? I'd agree, but in general, would you say 15% is okay?

Well, my whole schtick is about how what I do has a great deal of value, and it undercuts that a little to try to stick all my professional negotiating experience into a sentence.

But my college sweetheart was in Eliot, so you've softened me up.

The trick to negotiating is knowledge, so you have to try to get educated about your sub-market. 15% off is too low on a penthouse, because there aren't that many and they're not substitutable. On a two-bedroom that there are a lot of, probably okay.

I am happy to talk to you specifically about the Orion, if you don't already have a realtor (I don't bust up marriages) ... but in general, realize that there are 18 two-bedrooms for sale in that building. Also, there are some units that have already closed. In other words, there's a lot of sub-market information available there.

ali r.
{downtown broker}

[rsupreme]

Ali, thanks for your help. I'm not trying to get you to divulge all your trade secrets, fear not. :)

I'll certainly keep you in mind, but my interest in the Orion is waning... If my other prospects don't work out, expect a PM from me. Always happy to keep things in the (H) family.

Back to the topic at hand, do you know what typical NYC commissions contracts are? 3-6% of final sales price to selling agent, which he/she then splits with buying agent if there is one?

[Front_Porch]

Thanks, for keeping me in mind, always happy to be considered. I generally work below 23rd but I do live in Midtown, so it's not totally foreign to me.

It's tough to talk about commission because generalized discussion of pricing is always seen as a violation of antitrust laws. So let's start with the disclaimer that commission is always negotiable. In New York City, commission on sales is generally paid by the seller. Then we'll add that if there were to be an industry standard, which outside observers might have seen as 6%, it would be trending down.

For one thing, the Internet makes for faster transactions, and for another, rising asset values need to be balanced by a lower commission rate. On the other hand, you can't go too low, because as Michael Meier (formerly of Foxton's, now of elliman) has pointed out, even discount firms have to cover their rent and advertising costs to compete in the city.

So an individual seller who was comparing agents on price might possibly hear a range of commission quotes ranging from 4 to 6 percent. If they were in Long Island instead of the city, they might possibly hear the lower end of that range more often.

An individual buyer seeing a range of properties with an agent would see that agent being offered a "co-broke" fee. That fee might or might not represent half of the commission. For instance, some of the big full-service firms might, hypothetically, take listings at 5%, but offer out 3% on the co-broke to look like they're still taking the business at 6%. Or they might take the listing at 6% and keep 3.5% for themselves.

New development agents also typically get less than whatever the hypothetical standard would be, because hey, they're in the showroom -- their jobs are easier. But they do tend to offer a standard co-broke.

Of course that commission is paid to the co-broking firm, not the agent. So if Halstead is selling a $500,000 property at 5%, and they're offering 2.5% as the co-broke, the commission is $25K total = $12.5K Halstead + $12.5K co-broking firm. How much of that $12.5K that gets paid to my co-broking firm ends up in my pocket, as the agent, is a matter of negotiation. Guess that the house takes roughly half and you would often be correct. Big agents who move $50 million of property and up in a year can probably push their splits as high as 70/30 -- but at a certain point, the splits don't move, which is one reason why big brokers end up storming off and founding their own firms.

The obvious thing for a buyer to do -- to request a kick-back from his agent or his firm in return for a smooth, easy deal -- is illegal in New York State. Again, I think it's an antitrust problem, but it does tie an agent's hands. Why can I spend $1,000 on advertising that leads to a sale, but I can't buy you a plane ticket to Paris as an incentive to close a sale? I don't know why, I just know that I can't.

What a savvy buyer might do, in an individual, negotiable case -- is say, "hey, agent, I'm buying through you, you're making $XXX, what I'd like to do is sell through you in five years, but you know, I really would expect you to give me a family rate of $YYY when you take that listing."

hypothetically.

ali r.
{downtown broker}

[bigkdc]

Did not really know where to put this and don't think it merits its own thread....

What are the pros/cons of selling a place by giving an exclusive vs allowing multiple people to list it?

Does the answer change depending on type of apt (coop vs condo, basic vs luxury)?

[Front_Porch]

Of course I'm biased, but I think non-exclusive listings confuse and anger buyers. There are some very recent posts on the Orion thread by a buyer accusing agents of "fraud" -- when in reality, that buyer is just seeing multiple posts of a non-exclusive listing.

You as the seller may think, "hey, the brokers will work harder if they're pitted against each other, and maybe I'll save the seller's half of the commission."

But the 2.5% or 3% (or whatever it is) you're attempting to save, I think is eradicated in the advertising chaos that ensues.

If you must go non-exclusive, at the very least, watch advertising portals like trulia and streeteasy and nytimes.com, and make sure that your listing shows up at a consistent price point.

Once a buyer thinks they can save $5K by picking broker A instead of broker B, you're toast. They will sit on the sidelines vulture-like waiting for your price to keep dropping.

ali r.
{downtown broker}

[bigkdc]

Interesting - I hadn't thought of the impact the multiple listings could have on the buyer universe.

I have always thought it would make sense to have one seller who is really focused on getting the best outcome because it is good from a reputation/resume building perspective.

So when hiring a broker is it acceptable to have several answer 4-5 questions (experience, listing strategy, showing strategy, etc) and then pick one based on personality fit and the answers to those questions? Will the ones you don't pick get upset that they didn't get hired or will they go out and try and find a buyer?

[Front_Porch]

right on the money: bring different agents in, have them pitch, ask them questions, and then notify the ones that don't make it that you'd still love to offer them a co-broke.

Good questions are: What is this apartment worth and why? (I was just at a listing pitch last night, and I valued the apartment at $50K more than the competing agent, because I argued that in that market niche at the current time there was absolutely no inventory, and I had the computer runs to back it up)

Have you sold similar apartments -- size, neighborhood, price point, co-op, condo?

What would your marketing strategy be? What would you do if your marketing strategy seems to be failing in five weeks?

Who do you think is going to buy this apartment and how are you going to reach them?

and, my absolute favorite: If I don't hire you, which of your competitors should I hire and why?

ali r.
{downtown broker}

[bigkdc]

In your opinion what is the single most important question of all of those? Experience?

[Front_Porch]

No, because when I hadn't sold any apartments I didn't want to be asked it. ;>

Seriously, though, sometimes someone with very little experience will kill themselves for you, while someone with a lot of experience might have too many clients and do a bad job on all of them.

I would say, just because it's so encompassing, "what's your marketing plan?"

Everybody has access to roughly the same computer system (through different portals) and everybody is going to advertise your place in the New York Times. The story each broker tells beyond that, though, is going to be differentiating.

ali r.
{downtown broker}