Are Real Estate Agents Obsolete in NYC?

Real estate agents in NYC still represent over 95% of sellers and over 75% of buyers as of today despite major advances in technology and information accessibility for consumers. Furthermore, real estate commissions in NYC remain stubbornly fixed at 5% to 6% even as broker fees have fallen drastically in other parts of the country. Broker commissions in NYC are two to three times higher than what sellers pay in London, which is considered by many to be a sister city to NYC.

As of this writing, real estate agents in NYC are most certainly not obsolete. In fact, NYC has a rock-solid, entrenched ‘two-agent’ model which means that over 75% of transactions are done with two agents: a listing agent representing the seller and a buyer’s broker representing the purchaser. Buyers are encouraged to work with buyer’s agents because sellers continue to pay all commissions, including the fee to the buyer’s broker. Consequentially, sellers are obligated to offer high buyer agent commissions in order to attract the buyers who are represented.

If you’re reading this article, chances are that you’re a seller faced with the humbling prospect of having to pay up to 6% of your home sale proceeds to a broker. Although headline commission rates remain high in NYC, there are a number of ways to save money under the existing broker fee model. Buyers can significantly reduce or eliminate their closing costs by requesting a Buyer Closing Credit, and sellers can save up to 6% in broker fees through an Agent Assisted FSBO. There’s also a more economical 1% Full Service Option for sellers who don’t have time to manage the sale process on their own.

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Why Do NYC Real Estate Agents Still Exist If All Listings Are Online?

Real estate agents in NYC are as influential as ever, despite the fact that all listings are now directly accessible to consumers online. The advent of search platforms such as Zillow has simply reprioritized the ‘value add’ of buyer brokers from finding listings in the pre-internet era to negotiating, providing strategic advice and helping with co-op board packages.

If buyer agents are doing significantly less work today than what they did 20 years ago, why haven’t commissions fallen in lockstep? We believe the reason is that major online real estate websites such as Zillow actively promote the intermediation of buyer’s agents in real estate transactions nationwide.

If you’ve ever searched for a listing on Zillow or StreetEasy, you’ll notice that that it’s not very straightforward to contact the listing agent. In fact, the default ‘contact’ option for most listings is actually a buyer’s broker who has paid Zillow to appear next to listings as a point of contact for interested buyers.

The sale of ‘leads’ to buyer’s brokers as well as other advertising placement services for brokers are a major source of revenue for Zillow and many other competing real estate search websites who engage in similar behavior. In other words, these major real estate websites rely on the continued existence of a robust (high) commission environment as part of their business model.

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Do Unrepresented Buyers Have More Leverage in NYC?

Unrepresented buyers in NYC have minimal additional leverage vs. represented buyers. This is because sellers in NYC, on average, don’t save any money on commission if a buyer is unrepresented.

Listing agreements for sellers in NYC are quite onerous, as they usually stipulate a fixed commission amount payable by the seller even if a buyer submits an offer without a buyer’s agent. As a result, there is little or no economic incentive for a seller to favor a direct buyer’s offer over one which comes from a represented buyer.

Real estate agents are not obsolete in NYC. Over 95% of sellers and 75% of buyers use brokers in NYC, and commissions remain stubbornly fixed at 5% to 6%.

Arguably the only ‘incentive’ at work when it comes to direct buyers is the listing agent’s desire to collect the full 6% commission without having to split it with a buyer’s agent. While on the fringe this may favor a direct buyer, it’s ultimately the seller’s decision on who to sell to.

Furthermore, the incentive for listing agents to favor direct buyers may actually constitute a conflict of interest with buyers. For example, a listing agent may choose to ‘gamble’ on earning extra commission by aggressively pushing for the seller to accept an offer from a direct buyer whose financials may not meet the co-op’s financial requirements. This can end up harming both the buyer and the seller in the event of a co-op board rejection. In addition, the allure of extra commission may compel a listing agent to provide false or misleading information to a buyer in the hopes that they move forward with a deal and help unlock the full 6% commission for the listing agent.

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Why Isn't FSBO More Common in NYC?

Selling via traditional FSBO is less common in NYC because it is largely ineffective. This is becuase of the fact that over 75% of buyers are represented by brokers, and FSBO sellers are unable to list their home in the broker database (RLS) used by buyer agents to search for and send listings to buyers.

As a result, FSBO sellers who post a listing online are effectively advertising their home to less than 25% of the total buyer base. To make matters worse, FSBO sellers are routinely solicited, harassed and fed lies by hungry real estate agents looking for new seller clients. The combination of poor buyer exposure and relentless harassment are key drivers of the high failure rate for the traditional FSBO approach in NYC.

While many FSBO sellers get lucky and happen to find a direct buyer, how can they know whether or not they would have received higher offers from represented buyers which would have more than covered any incremental commission bill?

Because the traditional FSBO method in NYC is inherently flawed, many sellers have flocked to the significantly more effective Agent Assisted FSBO model here in NYC. In an Agent Assisted FSBO, a home seller pays a flat fee to be listed in their local MLS (RLS in NYC). The listing also syndicates out to over a dozen popular real estate websites such as StreetEasy, NYT, Realtor.com and Zillow. If a buyer comes without an agent, the seller saves the full 6% in real estate commission. If a buyer comes with an agent, the seller would only pay whatever buyer broker commission they’ve elected to list in the broker database.

The FSBO statistics in NYC significantly underreport the number of sellers who are utilizing lower-commission options because Agent Assisted FSBO listings appear just like traditional listings, both online and in the MLS. Therefore, the number of Agent Assisted FSBO sellers cannot be measured directly.

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When Will NYC Real Estate Agents Become Obsolete?

In light of NYC’s entrenched ‘two-agent’ real estate brokerage model, there’s no telling when or if real estate agents will become obsolete in New York City. The truth is that advances in technology and market transparency have done very little to disrupt the residential real estate brokerage and its 30,000 real estate agents.

While there are more reduced-commission alternatives for sellers today then there were 10 years ago, we’re surprised that this increased competition hasn’t done much to materially disrupt headline broker commission rates in NYC. Over 95% of sellers in NYC still hire a traditional listing agent and pay 5% to 6% in commission, despite there being reduced cost alternatives such as 1% Full Service and Agent Assisted FSBO.

Arguably, there will always be a need for some sort of real estate professional to be involved in a transaction here in NYC. This is because most homeowners don’t have the time or desire to conduct their own open houses and manage the sale process. Furthermore, even some of the most experienced career salespeople will tell you that they’re not very good at or comfortable with negotiating on their own behalf.

While there will always be some value in having someone show your home and negotiate on your behalf, we believe that the cost of this convenience will continue to decrease over time until sellers feel that the commission structure is more fair and equitable.

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Disclosure: Hauseit and its affiliates do not provide tax, legal, financial or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, financial or accounting advice. You should consult your own tax, legal, financial and accounting advisors before engaging in any transaction. The services marketed on Hauseit.com are provided by licensed real estate brokers and other third party professional service providers. Hauseit LLC is not a licensed real estate broker nor a member of any multiple listing service (MLS).

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