The House Buying Process
Buying a house is one of the biggest commitments you can ever make. And boy is it stressful. You have to put down precious cash savings, go into hock for up to thirty years, and second-guess yourself half to death going to sleep every night until your offer is accepted, and the deal is closed.
That’s a LOT as it is. But even worse is the ridiculous complexity built into the process that’s totally unnecessary.
Seriously, when you buy a car do you need to talk to ten different companies in order to drive off the lot?
But that’s exactly what happens in the residential real estate world. Over time, real estate brokers have convinced home buyers and sellers that their “expertise” is needed in order for all the parties to get a fair shake. And then, to make sure that shake is even close to fair, the government has piled on a ton of regulations meant to protect consumers.
The result? An incredibly costly, stressful and yes, DUMB status quo that shouldn’t exist period, much less in the age of the Internet when we’ve all gotten used to buying diapers, ordering rides and doing our banking online.
Never Ending Red Tape
At the root of all this dysfunctionality is the mirage of “fair” representation by agents for buyers and sellers.
In 1974 when Congress passed a law called RESPA, they ended price rigging and kickbacks between agents and the providers of the many other services needed to buy a house (like escrow and insurance). While RESPA may have ended routine price gouging, it also made the process for consumers especially complex.
Thanks to the shady practices of pre-1974 real estate agents and their cronies, now in 2019, to buy a home, you have to deal with multiple parties – most of them there to keep you safe from fraud or error.
There’s the escrow service, that holds the deposit until the contracts are settled.
There’s the title insurer, which checks whether the property you are buying has any liens against it or boundary issues but, in reality, doesn’t actually provide insurance.
There’s the mortgage provider, who lines up the loan most people need to pay for their home.
There’s the insurance provider, who lines up the insurance that you need to get that mortgage and secure your property against catastrophe.
And there’s the home warranty provider, which provides a limited warranty against the failure of big-ticket items like the water heater or roof.
Each of them charges fees and, because of regulations like RESPA, can’t bundle them together for simplicity’s sake or reduce overall transaction costs.
As if the hassle of all this wasn’t enough, you’re STILL getting overcharged by traditional real estate agents on top of it.
The cost of commission
Traditionally, the seller of a home agrees to pay around six percent of the value of the transaction for the services of their own broker and for the one who will represent the buyer, whoever that may be.
It’s like paying a lawyer to represent both yourself and the person you are suing — it doesn’t make a heck of a lot of sense.
Nowadays, buyers typically find the property they like on the on sites like Zillow or Homes.com, and then send the listing to their agent to set up a showing. In a lot of cases, all the buyer agent does is open up the house for viewing. Yet, despite that limited amount of work, the buyer’s agent still stands to collect HALF the commission being paid by the seller. That’s a hefty sum when you look at the numbers.
The way things are currently structured, 6% percent on a $700,000 house is $42,000. Which means, that buyers’ agent who opened the door for your showing, will pocket $21,000. That’s college tuition dollars. New car dollars. A bunch of vacation dollars.
To defend their position, buyers’ agents will tell you, “What do you care what my commission is? The seller is the one paying for it, not you!” Wishful thinking. You think that 6% sales commission the seller is paying isn’t baked into the listing price just so the seller can keep his head above water?
Buyer, seller, whatever…anyway you look at it, it’s a bad deal.
Now onto REX
REX charges sellers as little as 2% total. So, on that $700,000 house, the seller would pay just $14,000 instead of $42,000. By finding buyers directly, REX removes the need for sellers to overinflate the list price of their home just to factor in agent commissions.
We also pay our agents on both sides a salary, so there are no commissions (and a rush to close) or ban on referrals (a la RESPA). We’ve effectively created the ultimate one-stop-shop.
At REX, we help you arrange mortgage and insurance at the most competitive market rates. And because we do lots of business, we can take care of your escrow, title and warranty need at a lower price than you would get shopping on your own.
Written by: Jonathan Friedland