Are Realtors (TM) Greedy?
Quora sometimes offers strange questions and one of them arrived recently. In a nutshell, the question was whether realtors (TM) want housing to be unaffordable so they can make more money. My answer to it appears below:
Realtors are middlemen and -women who do not earn salaries and earn commissions instead. Their compensation remains the same at anywhere between 1.5 and 8 percent, depending on what services the realtor offers. The ordinary commission ranges between 2.5 and 3 percent but the percentage is negotiable.
Seller’s markets, buyer’s markets etc. require different skills, as do different properties. So addressing your question about what happens in what you call a “housing bubble,” we would need to know what kind of bubble you are talking about here. Perhaps you are thinking about the low inventory, high demand equation that has driven up property values in San Francisco and Vancouver?
Realtors have little to do with market dynamics and economics in a region. As already mentioned, they are knowledgeable middlemen and facilitate the buying and selling of real estate. They do not make the market, which brings us to your statement about housing affordability. Housing affordability and its current crisis level in the San Francisco Bay Area stem from many factors that brought it about: sweetheart deals with tech, opportunities for employment, tax issues and tax subsidies and lack thereof, real estate developers building a glut of luxury condos, and the list goes on.
Realtors only make money when a property sells and that only happens when there are buyers who can afford what the market offers. This requires a balance between income, inventory and asking price.