Many people are aware that Realtors make a 6% commission for helping you buy or sell a house. Usually that 6% is split between 2 agents. 3% for the buyer's agent and 3% for the seller's agent. Every real estate agent that will charge you such an exorbitant amount of money will justify it, and rationally defend the fact that they get paid insane amounts of money. However, only a consumer acting irrationally will pay someone hundreds of dollars an hour to help them through the buying or selling process.
Irrational real estate consumers do not act in such a way by choice. Usually they act irrationally because they are either forced to act irrationally, or they just don't know better. In the case of real estate agents, I primarily attribute irrational actions to a huge information gap between consumers and professionals, and a quasi-monopoly on the real estate market.
Because real estate professionals have information that is not known, or not readily accessible to the general population, they are able to charge a premium for that information. While I believe the market usually dictates the price someone can charge for information, I don't believe the price charged by real estate reflects the perceived utility their information provides. Basically Realtors provide you with 2 major information sets: finding/selling your home, and legal information.
The information on the internet helps bridge the first gap. You can easily find an internet site with homes for sale in your area. The second gap isn't as easily bridged because there is a certain amount of expertise involved in writing up a real estate contract. However when you think about the fact that you can pay a real estate attorney less than you pay a real estate agent for the same amount of work, it doesn't really add up. Why would you pay a Realtor more than you'd pay someone who actually UNDERSTANDS legal contracts? One reason is that quasi-monopoly I mentioned earlier.
I say quasi monopoly, because Realtors actively try to monopolize the buying and selling of real estate in order to protect the 6% commission standard. Many times, if you are looking for a home on your own, without the help of an agent, and you call another agent asking to see a house, you will usually get two responses. They will either try and sell themselves as your new agent, or they will tell you to have your agent contact them. Agents only want to work with other agents, because it protects the 6% commission structure that has been in place for decades. The second it becomes easy for consumers to buy and sell real estate on their own, is the second Realtors will have to start charging less for their services.
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I appreciate this insight. I have felt pressure in using agents. My agent represented the sale of my townhome and represented the buyer and caused me more headache than I care for. We nearly didn't sell the place as a result. As a seller, I feel screwed, because agents shy away from FSBO's and I cannot list on MLS unless I pay for the service thru a 3rd party, and ensures the 6% split for the Realtors.
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