The Contrarian’s Guide to Real Estate / Real Estate Landscape
Commissions are sky high
Misaligned incentives are worse
The financial benefits of home ownership are substantial, and as a result, many people end up allocating much of their net worth, and debt, to the asset class of residential real estate. And despite the value of all U.S. homes approaching nearly 35 trillion dollars, the process of transacting homes nationwide remains one of the least efficient in the world with many sellers getting unnecessarily poor financial outcomes.
Brokers and agents encourage the use of language that frames transactions in a certain way, mostly because it glosses over the critical financial distinctions. Moving past the limitations of this language framework enables home sellers to make decisions that can lead to better outcomes for their net proceeds. Want proof that sellers can do better than the typical retail brokerage home sale performance? Look no further than what happens when those same agents sell their own homes.
The most important thing to do before listing your home is educating yourself on how residential real estate works and why the MLS works so well. Once you understand that the MLS plays the role of a monopoly in the marketplace for homes, it’s easy to see through misleading claims from different brokers that they will use proprietary marketing to get you a better price for your home. The idea that you need a big commission to get your house sold at a high price is another fallacy that cost home sellers a large chunk of their net proceeds. In fact, any buyer can take advantage of these unnecessary commissions, especially when they understand they are the ones bringing all the money to the table, to purchase homes for 3% off the list price. Finally, if you ever wonder why agents and brokers hardly ever differentiate themselves based on the net proceeds they can achieve for a seller, recognize that it is because their business model is designed to intercept those funds as revenue for their business.
Remember, maximizing your net proceeds requires moving beyond the conventional retail language that precludes positive financial results. Be sure to check out the next section in the Contrarian's Guide on commissions and selling options.