The Housing Scene

Which would you rather pay a real estate agent to help you sell your $450,000 house: a 6% sales commission or $27,000 They’re exactly the same amounts, of course. But 27 grand sounds like a lot more than 6%, doesn’t it? And that’s why an unpublished (as of this writing) report from Stephen Brobeck, a senior fellow at both the Consumer Policy Center, contends realty professionals almost always quote percentages instead of hard-and-fast numbers.

Obviously, you’ll never know what you will eventually get for your house until a contract to buy it is signed, sealed and delivered, so quoting a percentage makes sense. There’s a big difference between 6% of $450,000 and 6% of $400,00 -- in this case, $3,000,

Nevertheless, Brobeck maintains that treating broker commissions in terms of percentages rather than dollars leads many sellers and buyers to overlook the real cost of buying and selling a house. To many, he says, a percentage is perceived to be less costly -- and that’s that.

Forget for a moment that percentage-based commissions tend to discourage some -- but certainly not all -- agents on both sides of the table to negotiate prices down. After all, the higher the price, the bigger their paydays.

Just consider the notion that, as Brobeck quotes an expert in this report, “percentages add a layer of abstraction” to the transaction.

It’s simply more difficult for most people to translate percentages into real estate dollars, especially when the money is a large amount. And as everyone knows, real estate commissions tend to be very large, about $19,000 on the median priced house at the typical commission.

The research bears out that supposition. In one study, investigators found that “percentages are difficult to process and understand.” Another study cited in Brobeck’s paper compared consumer perceptions of a $50 discount with a 15% discount. Even though the dollar savings were identical, the $50 off coupon generated much more revenue, with the researchers concluding that not only did people fail to do the math, they had no desire to.

There are other reasons why consumers accept the cost of buying and selling as a percentage. One is that they have other priorities, mainly setting the sale prices, getting the deal done and buying another house at the same time. What they are actually paying only hits them squarely between the eyes at the closing table.

Perhaps that’s why, Brobeck notes, when a national research firm asked 1,000 adults how they preferred their agents’ compensation to be listed -- as a dollar figure or as a percentage of the sale price -– 55% choose dollars. Only 15% picked percentage, while 30% had no preference.

Moreover, two-thirds said they supported a requirement that commissions also be stated in dollars. Yet, most agents talk only in terms of percentages and very little else.

Now let’s look at the cover that quoting compensation as a percentage gives those agents who won’t work for a lower price because it drives down their own bottom lines. “While many agents resist this temptation,” Brobeck says, “there is evidence that others succumb to it.”

Here, he cites two Federal Reserve economists’ discussion a year or so ago about this “backward incentive” as it relates to agents who represent buyers. Noting that commissions stated as a percentage offer a “direct disincentive” for the agent to bargain on his client’s behalf, they explained it this way:

“The harder and smarter the buyer’s agent negotiates on behalf of her client, the less she gets paid at closing.”

Another research study came to a similar conclusion: “This creates an obvious conflict of interest. ... Given that the agent receives a small portion of the transaction price as (a) commission, the agent’s goal of maximizing the expected commission will conflict with the buyer’s goal of minimizing the selling price.”

Unlike Brobeck’s previous reports, this one breaks no new ground and does not contain original research. It proposes no policy changes, either. But it does discuss how parties to a real estate transaction can protect themselves from paying more than they should.

First, ask your agent what the stated percentage would mean in dollar terms. This alone, the Brobeck believes, will put your agent on notice that you are concerned with what you are paying for their services. And it “will encourage agents to negotiate” their fees, he believes.

He also suggests buyers try to bargain for a fixed dollar fee with their agent -- one that does not rise if the agent is unsuccessful in negotiating a lower price. “A flat buyer agent fee will help prevent an increase in home price simply because a listing agent tries to raise the sale price while the buyer agent ‘shirks’ from trying to lower it,” he says.

Sellers, too, might want to consider flat-fee agents for their side of the equation. You might not get as much service as you’d like, but the cost to sell your house will likely be much lower.

“To the extent these consumers treat the fees as dollars, not percentage of sale price, they should be able to more effectively negotiate the fees,” Brobeck concludes. “This ability, most experts agree, will not only lower commissions overall but align agent compensation more closely with the services that agents provide.”

In the market for a newly constructed house? You might want to hurry. Soon, new homes are likely to cost more and take longer to build.

The reason: the Trump administration’s initiatives on tariffs and immigration.

While the president has professed his intention to bring down housing costs, placing tariffs on the country’s largest trade partners could do the opposite. Tariffs could raise the price of a new house by as much as $22,000, according to an estimate from CoreLogic.

Furthermore, immigrants make up about 23% of the construction workforce, per the Urban Institute, with an estimated half of them undocumented. Any mass deportation effort would only exacerbate the current shortage of construction workers.

At this writing, the tariffs are on pause. But the National Association of Home Builders is still advocating for an exemption for building materials, should the tariffs be reinstituted.

“Our lobby team has met nonstop with almost any member of Congress that they can find to get our message across,” NAHB’s Karl Eckhart told the trade publication Builder. “These Canadian and Mexican tariffs are going to have a direct and painful impact on the price to build a house.”

How much of an impact? That's anyone’s guess. NAHB’s chief economist, Rob Dietz, citing estimates from members, says prices could go up by as much as $10,000. John Burns Research and Consulting says the tariffs, if fully enforced as proposed, would add 10% to the median-priced model.

That’s because roughly 70% of the lumber in a typical house comes from Canada. Mexico is the largest provider of gypsum for drywall. And many household appliances like refrigerators and ranges come from international trade.

“While home building is inherently domestic, builders rely on components produced abroad,” writes Carl Harris, NAHB's immediate past chairman, in an open letter to President Trump. "Imposing additional tariffs on these imports will lead to higher material costs, which will ultimately be passed on to home buyers in the form of increased housing prices."

According to the association, every $1,000 increase in the price of a median-priced new home knocks nearly 115,600 households out of the market. And although the tariffs are on hold, some builders have begun raising their prices in anticipation that Trump will ultimately drop the hammer.

Builders have few options. They can eat the rising costs to a point, but beyond that, they must either pass them on to their buyers or build smaller houses with fewer amenities.

As for immigration, the administration has already begun rounding up undocumented immigrants. And any massive deportation effort will further hinder an industry that’s already some 250,000 workers shy.

Builders’ labor costs already are going up. If it becomes even more difficult to find workers, they’ll have to pay higher wages -- or lose out to competitors who will.

The new-home market is already woefully under-built when compared to population growth. The housing shortage is estimated at 3.7 million units, which has helped push prices and rents to record levels. While the number of housing units grew by 10% between 2010 and 2023, according to the Urban Institute, the number of households grew by 13%.

The Center for Migration Studies estimates that 54% of foreign-born construction workers are undocumented. Consequently, says the Urban Institute, deportations could bring about the loss of some 1.7 million construction workers. In Texas alone, where an estimated 23% of all construction workers are undocumented, the American Immigration Council says the state's housing business stands to lose as many as 337,000 workers.

But it goes beyond that: "In a climate of heightened enforcement," says the Urban Institute, "workers who were born in the U.S., are naturalized U.S. citizens, or are green card holders may also fear racial profiling and enforcement risks for themselves and family members." Due to this widespread fear, some workers elect to stay home from work rather than put themselves and their families at risk.

It already takes 10 months or so to build a house, once a sales contract is signed. But with fewer workers to go around, it will inevitably take longer -- not just weeks longer, but months.

If you need another reason to get moving on that new house, there’s also evidence that sales incentives are slowly falling away.

There was some speculation that price cuts, giveaways, discounted mortgage rates and other incentives had become so prevalent that buyers had come to expect them as a matter of course. And that may be so, with 59% of all builders offering them, according to the latest NAHB survey.

Marketing company Zonda agrees that incentives are “still common,” with 73% of builders offering them on their "quick move-in" houses. But Zonda says a smaller number of builders, around 56% of them, are offering these perks on to-be-built homes.

Houses are meant to be lived in -- except when they are for sale. That’s when they switch from a home to a commodity: a place that has to be ready for prospective buyers at a moment’s notice.

The question, then, is: How do you square the two? How do you live in a house that’s on the market?

There’s no easy answer, especially if you have little ones. Sometimes, it’s a real challenge.

There’s not much you can do when a friendly agent calls to say they’ll be over with a client in, say, 10 minutes. (An agent I know once had a client who insisted on viewing a house at 7 a.m. Who’s ready to show their home at that ungodly hour?) In those rushed cases, maybe you just kick the dirty socks under the bed, toss the dishes in the dishwasher (or stack them neatly in the sink) and make the beds.

Even with fair warning, showings don't always go as planned. True story: A woman, eight months pregnant and with a young child, agreed to a two-hour window for an agent to show her place. She dutifully left the house and went to the park with her child, and when the two hours were up, she went home.

She was hot, sweaty and tired, so she jumped in the shower -- and that’s when the late-arriving agent rang the doorbell.

At times like these, sellers have to show buyers a little grace. Not everything can be perfect. But the more steps you take to make your place “show ready,” the faster it is likely to sell -- and for more money.

Fortunately, many of those steps can, and should, be done long before the doorbell rings -- or even before your house is listed for sale.

Here’s what real estate pros around the country want their sellers to do:

-- Eliminate the clutter. Everyone has some clutter, even if it’s confined to a junk drawer in the kitchen. But some people have more than others, and it needs to be dealt with.

If the living room looks overcrowded, lose a side table or two. If your kitchen counter is overrun by small appliances, some of which you rarely use, give them away. (And get rid of those unsightly extension cords; you don’t want to advertise that there aren’t enough outlets.)

Lighten the load in your closets so they look nice and roomy. This is a step that will actually save you money because you'll have less stuff to move after you sell.

If a small secondary bedroom seems even smaller because you've crammed in a full complement of furniture, send a couple of pieces to storage. Speaking of storage, put your collectibles away. You may love showing off the turtle carvings you’ve found over the years, but they will be distracting to would-be buyers. You want them to pay attention to the house, not your keepsakes.

-- Keep it clean. Cleanliness is not only next to godliness; it’s also one key to presenting your home in its best light. If you don’t have the time or the patience to do a thorough job, consider hiring a professional cleaning service.

Inside and out, squeaky-clean is the order of the day. Baseboards, windows, walkways and drives -- everything must be addressed. And not just prior to listing your house, but also while it’s on the market.

-- Get in the habit. Adopt a routine of making the beds every morning and putting the dishes in the dishwasher after every meal. If these tasks are habits, done on autopilot, you won't have to worry about doing them when a prospect comes calling.

-- Have an exit plan. An open house is a well-planned event, but individual showings almost always come at the most inconvenient times. So you must be ready.

Give each member of your family a pre-showing job. Perhaps Junior puts all the toys away while Missy makes the beds. Dad gets everyone dressed, and Mom makes sure everybody does what’s expected of them.

Also, keep a bag loaded with games and snacks so you can entertain everyone when you vacate the premises. Think of things to do -- going to the movies, for example -- so the time passes more quickly.

Before you leave, turn on all the lamps and lights, open the drapes and raise the shades. The idea is to allow as much light as possible into the house so it looks airy and bright. Maybe even spray a nice scent and turn on the radio so a little romantic music plays in the background.

Showing off your place takes a little planning and some extra work. You can’t cut corners and hope buyers will love your house; you’ve got to give them a reason to.

Better yet, sellers who put their homes in peak show condition put themselves in the best position for a top offer.