It Costs Too Much to Buy and Sell a Home in Los Angeles

Buying or selling a home is one of the biggest decisions most people make. The country’s total residential property market is worth $34 trillion, which is as much as the value of all its publicly listed firms. The Economist says that buying and selling a property in America is cumbersome and extraordinarily expensive compared with other industries and other countries. | Blog Video

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The Economist is missing the mark just a bit when it discusses commissions. Broker fees commonly run at 5% to 6% of the value of a property, which The Economist says is three times the average level in other developed countries. This is misleading. California commissions are always up for negotiation, individual agents usually receive closer to 2.5% (which is sometimes split among more than one agent), and the agents must pay a very large chunk of this for expenses of living and doing business in California, vehicle, gas, parking, advertising, marketing, photography, assistance, transaction coordinator, broker, MLS, Association of Realtors, legal fees and taxes, plus they must pay for their own expensive housing if they live in a price place like Los Angeles. #sellloft #sellcondo #sellhouse

The Economist fails to recognize that other states do many things differently, and other countries do things dramatically differently, so that the commission comparison is completely disconnected. Apples and oranges have different prices. Real estate professionals in other countries follow entirely different rules, engage in totally different advertising, marketing and administration practices, have different training, different laws, different professional practices and much different results. In some of the countries that the Economist has studied, they failed to note that individual brokers were receiving the same amount as California agents, but the condos in Switzerland actually sold much slower, often taking months or years to sell versus weeks to sell in California.

The Economist correctly points out that Americans are moving less frequently today. In the 1950s, 20% of households moved each year; today only 9% do. The frequency of Downtown Los Angeles residents moving has dropped significantly. 2019 saw only about 25% as many transactions as 2017. That caused a substantial drop in total average commission for L.A. loft specialist real estate professionals. Local pros are actually making about 70% less than they made a couple years ago. Try living on a 70% pay cut. We’ve seen several cases of overdose, suicide and homelessness by local real estate professionals in the last two years.

Maisy Wong of the Wharton School of the University of Pennsylvania says that brokers steer buyers away from properties that offer less than 3% commission, keeping fees high. Steering is a provocative word that generally refers to agents suggesting neighborhoods based on racial make-up. In California, real estate professionals have the right to show properties based on commission because that is how they get paid. Like other commissioned sales people, most real estate agents must get paid or their work. A satisfactory commission is the primary motivation for a real estate salesperson. If a home seller or buyer wants the assistance of the best, most motivated salesperson, the buyer or seller will pay some attention to make sure the salesperson is paid well. If the client prefers the professional to be paid salary or a set dollar amount, they may negotiate that instead of the commission percentage. In California, the commission percentage is usually set by the seller and their broker. The commission may be anywhere from $1 to 10% or more, with 5% to 6% being the most common total, which is split up among all participating brokers and agents.

Home buyers and sellers are paying more, and the main reasons include: the increase in home prices, increases in the cost of living, increases in the cost of doing business, and increases in the bureaucracy and administration of real estate transactions. The state of California has steadily increased the legal and administrative burdens on buyers, sellers and real estate professionals. New required paperwork keeps being added: Disclosure form that states the property has a pool or hot tub that may be dangerous, disclosure that there are earthquakes in California that may be dangerous and many other forms and other legal requirements, many designed to protect and educate home buyers. These legal requirements make it difficult or impossible for home sellers to sell their own homes.

Broker commission is the biggest expense for home sellers, which buyers must ultimately pay for. For buyers, lending fees, taxes, insurance and other miscellaneous costs add up.

How to Sell your Downtown Condo Without an Agent and Save the Commission. Fill out my online form:

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Copyright © This free information provided courtesy L.A. Loft Blog and LAcondoInfo.com with information provided by Corey Chambers, Realty Source Inc, BRE 01889449 We are not associated with the homeowner’s association or developer. For more information, contact 213-880-9910 or visit LAcondoInfo.com Licensed in California. All information provided is deemed reliable but is not guaranteed and should be independently verified. Properties subject to prior sale or rental. This is not a solicitation if buyer or seller is already under contract with another broker.

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