I’ve been an advocate of trashing ‘The Traditional 6% Real Estate Commission Model’ for almost 10 years. When I owned a brokerage I offered alternative commission models to clients and was nearly hung, tarred and feathered (definitely blackballed) at the bequest of numerous other Realtors and NAR’s local chapter.
In spirit of my experiences, any time a chance arises to take a swipe at NAR’s antiquated ways and membership, I’ll oblige.
Part 1 Freakonomics
A New York Times best seller (and blog) written by Steven Levitt and Stephen Dunbar pointed out that a real estate professionals traditional compensation methodology is (way) out of sync with buyers and sellers economic interests and incentives.
Levitt writes that incentives are tricky when it comes to real estate commissions. The traditional 6% is typically split between sellers and buyers agents and split again between the agent and their agency, so the agent may only end up with 1.5% of the sales price, not 6%. At a $300,000 sales price, this would yield $4500 to the (buyers and/or sellers) agent. Drilling down quickly here, the basis of the argument is:
What is the agents incentive to sell the house for more than $300,000? What if they were a little more patient, put in a little more effort and could have secured a $310,000 sales price?
That would put $9400 net more in the sellers pocket, a good chunk of change. How much more would the agent receive?
$150.00
The same happens in reverse. You list the home at $300,000 but a buyers agent brings an offer of $290,000. You stand to eat ~$10,000 while the agent only stands to lose $150.00, but puts money in their pocket much quicker.
Long and short of it: The home seller and listing agents incentives are no where close to aligned.
*Pow* A black eye to the real estate commission model from a highly respected economist.
Part 2 Mark Nadel
Mark penned the following blistering expose for the FTC:
A Critical Assessment of the Traditional Residential Real Estate Broker Commission Rate Structure
To which I compartmentalized a bit here:
The Traditional Real Estate Commission Model. A Critical Assessment
Critical Assessment of The Traditional Real Estate Commission Model II
*Ugh* Gut punch from the Ivory Tower
Part 3
B. Douglas Bernheim and Jonathan Meer from the Department of Economics at Stanford University released the following case study last month:
HOW MUCH VALUE DO REAL ESTATE BROKERS ADD? A CASE STUDY
From the Introduction section of their study:
Historically, sales commissions for residential real estate brokers have averaged between five and six percent of sales prices. In 2004, commissions paid to brokers in the U.S. totaled roughly $61 billion (Hagerty, 2005). Do brokers provide commensurate value?
Sellers potentially benefit from brokers’ services in a variety of ways:
First, brokers provide promotional services. They help prepare a house for sales, circulate flyer’s, place advertisements, hold open houses, and recommend the house to individual buyers.
Second, they often assist with negotiations.1
Third, they screen prospective buyers, facilitating and potentially accelerating the process of matching buyers and sellers (Salant, 1991).
Fourth, they provide access to the Multiple Listing Service (MLS), which lists all homes available for sale.
Fifth, they provide market information and recommendations pertaining to the appropriate asking price.2
Sixth, they of-ten assist with paperwork and legal documentation.
How much is this bundle of services worth? Because the component services are some-times unbundled, we can judge their value by examining market prices.
Discount brokers provide access to the MLS for as little as $300 (Darlin, 2003).
Market information and forecasts of selling prices are available through professional appraisals, which cost a few hundred dollars. 3
In Illinois, where sellers are required to retain real estate attorneys to prepare and review sales contracts, legal fees average roughly $700.4
Thus, the total market value of the fourth, fifth, and sixth benefits listed in the previous paragraph is roughly $1400 – enough to justify a 6% commission on only the first $23,000 of proceeds from the sale of a home.
To justify brokers’ commissions, the value of the first three benefits must be substantial.
Berheim and Meer test pool consists of homes sold on Stanford Universities campus over a 26 year period. It’s an interesting microcosm to study since it allows the authors to hone in the first three perceived benefits of a real estate agent:
Several features of this data make it particularly useful for our purposes. First, since the eligible buyer population is limited, the MLS plays no role in the campus housing market. Instead, the Faculty Staff Housing (FSH) Office maintains a free listing service for eligible buyers and sellers. Consequently, there is no risk of confounding the value of broker services with the value of access to multiple listing services. In addition, access to free listings has historically enhanced the willingness of homeowners to sell their homes without brokers. Indeed, during the 1980s, brokered transactions were rare. Second, our data sample spans a major regime shift. Brokered transactions became increasingly common during the 1990s, and have accounted for roughly half of all sales in recent years.
The value of real estate brokers for Stanford campus transactions is likely confined to promotional services, negotiations (the first and second roles listed above), and the interpretation of market data (an aspect of the fifth role). Given the small numbers of available houses and active eligible buyers as well as the physical proximity of all the homes, the costs of comprehensive search, and hence the value of pre-screening by brokers (the third role) is small for both buyers and sellers.
As we have mentioned, the value of MLS listings (the fourth role) is zero. The FSH Office also makes comprehensive market information (home characteristics, listing prices, listing dates, selling prices, and closing dates) for all transactions available to all buyers and sellers. Because market participants are generally familiar with the campus neighborhoods, and because the number of comparable transactions is limited, sellers can acquire and review virtually all pertinent market information at low cost. Thus, the value of brokers as providers (rather than interpreters) of market information (another aspect of the fifth role) is likely negligible. Finally, the FSH Office assists with paperwork, largely eliminating the value of the sixth role. Therefore, an analysis of the Stanford campus housing transactions permits us to hone in on the value of brokers as promoters, negotiators, and interpreters of market data.
Berheim and Meer use a series of coefficients and variables to create complex but proven statistical models, as well as reference Levitts (and others) data to substantiate their work. It’s not an easy read but the results are predictable, even though they don’t come right out and say it.
The 6% Realtor commission model is economically and practically retarded.
The study draws two primary conclusions that better articulate my less than novel statement:
First, using a real estate broker does not significantly affect either the average initial asking price or the average selling price of a home. This dispels the theory that brokers have negotiation power, thus diminishing their second perceived value above.
Second, using a broker does lead to a quicker sale. An added value, unless you consider Levitt’s work stating that agents are incentiveized to move a home quicker simply to turn inventory over. Holding out for a higher price, even $10,000 higher, is economically insignificant for an agent. We’re all driven by motive, ‘altruistic business practice’ is an oxymoron.
Even more interesting, an agents ability to sell a home quicker apparently is only prevalent during the first 60 days on market, after which homes represented by agents sell slower in months three and four, slightly higher in month 5, with no difference in month six. It would seem to make sense to fire your Realtor if they haven’t sold your home in 60 days…or at least not sign an agency agreement that binds you for longer than that.
Dialing back to a paragraph from the study’s Introduction:
Thus, the total market value of the fourth, fifth, and sixth benefits listed in the previous paragraph is roughly $1400 – enough to justify a 6% commission on only the first $23,000 of proceeds from the sale of a home.
To justify brokers’ commissions, the value of the first three benefits must be substantial.
Refresher:
First, brokers provide promotional services. They help prepare a house for sales, circulate flyer’s, place advertisements, hold open houses, and recommend the house to individual buyers.
Second, they often assist with negotiations.1
Third, they screen prospective buyers, facilitating and potentially accelerating the process of matching buyers and sellers (Salant, 1991).
The second benefit appears to be negligible according to this case study. The third is effectively the job of a mortgage professional or disintermediated by the advent of better information online which allows prospective buyers and sellers to quickly disseminate through and find each other, sans agent.
All of ‘this’ would lead someone like me (and many many more people) to summarize that a Realtor will sell your home fast and cheap for 6% of the sales price.
Granted, Berheim and Meer ’s case study isn’t the final word and may be off on more than one account, there are many debatable points and the same holds for Levitt and Nadel’s work. But when you start to add up the cumulative work from hundreds of hours of comprehensive study and research by highly intelligent people and institutions, you don’t have to posses a masters degree in Business Economics from an Ivy League school to understand that the traditional real estate commission model is (has been) broken.
Maybe one day the NAR will use it’s collective wisdom (and money from it’s million person army) to offer their membership some worthy advice and strategy instead of trying to protect some antiquated legacy.
Disclaimer: I believe real estate professionals provide a valuable service and aren’t the scourge of the earth. I also happen to like attorneys and claim members of both groups as friends.
Jeff,
The downward pressure on all pricing in the RE market is a stumbling block to maintaining professional standards.
This post really underscores that-thanks!
Steve
Well.. if it were easy to sell homes breaking down the value of using an agent and contracting out the parts to save $23000. I have to believe that everyone would be doing it. But they dont. They pay commissions. The fact is the consumers need our help now more than ever.
Jeff,
Although I don't agree with everything that you say, I think this was a well thought out and researched post. I happen to really agree with a percentage commission structure because the numbers are all relative and it's very straightforward. Here are a few things that are my opinion on the topic:
In the end it's the consumer that decides what our value is and what they are willing to pay. I think it's a great time and they have ample choice. I'm not trying to change your mind, I just wanted to offer up some compelling thoughts from the other side. I take no offense to your argument and I hope you take none to mine. Without debate nothing would improve.
Thanks.
One of the things that doesn't seem to play into this model is listings that don't sell (for the listing agent). There are fixed costs that have to be divided between all the listings an agent represents. Sometimes people have an unrealistic expection as to price or amount of time it will take a property to sell -- usually both. However, the agent is still out those costs of marketing etc.
About the 60-day time to list a property. I can't speak for the nation as a whole, but I know that the time from taking a listing to getting into the larger real estate magazines here averages 45 days from decision to run the ad to the date the ad actually is in the magazine and being distributed. That gives the agent (and the advertising they have paid for) only 2 weeks to work. The new agent (if the listing is pulled after 60 days) benefits from the expense of the first agent -- as we all know, if you see an ad for a property and its not listed with the agent that advertised it, its still pretty easy to find out the new listing agent. That agent benefits at no expense.
In a way the next statement does support what you say, and in a way, it doesn't: some clients are more expensive (in terms of time expended and ancillary costs like advertising, etc) than others. Some clients do want you to have open houses all the time (a cost of both time and advertising), pre-screen all clients (even buyers represented by other agent), be present at ALL showings, have custom signs made for their property, specify where they want it advertised, hold multiple broker opens with refreshments, etc. Not to mention, hold their hands continuously through the entire escrow process (above and beyond the normal transaction management that we all should be doing). I would agree that people that do not require this higher investment in time and cost should not pay the same as those who do -- the problem becomes that a seller can (and would) represent themself as a "low maintenance" seller in order to get the lower rate but undergo this miraculous transformation into "the seller from Hell" once you have agreed to a lower price. I don't get a lower price for computer software because I spent 20 years in the tech field as a database developer, systems manager and department head of IT -- yet, I am a much "lower maintenance" client for the software company than someone who asks "where's the 'any' key?". Real estate is not the only industry where the provider must generalize on price in order to even out the revenue and expense from both simple and complex clients.
I would agree that we will see changes in payment structure in the future. I believe that the consultative approach to real estate (where we are consultants to our buyers and seller and are compensated accordingly) will grow. I'm not opposed to that. In fact, I believe that if we deliver quality service and have a pre-agreed upon rate ($X per hour and a clear deliniation of what duties are billable), we might actually make more. The one very positive thing I see about that model is that the veil is pulled back -- the consumer (either buyer or seller) is very clear about exactly what they are paying for and what they will get for the money they spend.
I think our industry will change and not all of those change will be bad ones. If we truly do our jobs well, the increased transparency will actually benefit the industry in terms of our reputation with the public and our perceived value. It will be a radical shift, but failing to recognize the only constant in any industry is change is both short-sighted and foolish. There will be massive education involved, not only of real estate professionals but of our consumers as well. They have to see the value we provide and that our expertise and knowledge is worth a price.
Those who think it can't happen would be well advised to look at the financial services (and especially the stock/bond brokerage) business. There were those that claimed that the birth of "discount brokerages" (and I emphasize the term to note the similarity) would be the death of the industry and that consumers would be taken advantage of, mislead, etc. Of course, these are those who use discount brokerages for managing their investments that should not -- some people don't have the knowledge or time to do it well -- and there are those that use those services responsibly, well and to their advantage. Choice is never a bad thing, as long as the consumer is made aware of the differences and makes a personal determination of how much time and effort they wish to put into managing their own investments -- be it a stock portfolio or real estate investments (including a personal residence).
And I am so sure I'm going to get slammed that I almost wish there was a way to post this anonymously. I still do business the conventional way, but I recognize that failing to see changes on the horizon is not the best choice for long-term survival. I don't believe the earth is flat. Old sailors believed that if they sailed off the horizon they would fall off the earth and die. Instead they found a different world than the one they were used to. We are much the same.
I could go on and on about how much this possible change will affect us -- everything from simple things like our forms to agency agreements to more complex issues like MLS structure, disclosure and fiduciary responsibility.
Most of the people who wrote this stuff never tried to sell real estate. If it were oh sooooooooo eeeeeaaaaassssy, no one would hire us. I am paid for my time and KNOWLEDGE......KNOWLEDGE IS KEY HERE. That knowledge comes with knowing the inventory, knowing the market - knowing my area better than an attorney or any seller imaginable. I know about inspections, I know about repairs and renovation costs I KNOW ABOUT VALUE - I also know how to market a property and have contacts that make better marketing possible. How did I learn all this? It took TIME AND ENERGY and a constant learning curve. People pay me for the whole package - not sticking a sign in the ground and filling out a few forms. Also factored into this mix is all the work we do for FREE. The public expects to be given listings - FOR FREE. They expect to get CMA's FOR FREE. They expect to be able to drive around with us FOR FREE. The list goes on and on - but it is all this FREE service that facilitates transactions. This is not something that people can do as a hobby after work. Don't get me wrong...you can supplement your income with other jobs - I've done that...but to be effective - real estate must be your PRIMARY CAREER.
Our overall value is highlighted by the fact that every discount model that I have seen relies on FULL SERVICE agents to CARRY MOST OF THE WATER FOR BOTH SIDES OF THE TRANSACTION. There is no such thing as full service discount! They just shift the burden to the full service agent - forcing them to do THEIR WORK under the guise of their "fiduciary obligation." That will work only to a point. Agents are now protecting themselves againt such abuse. But the major discounters dread the day full-service dies - because they
leechdepend on us in order to complete the transaction. So far, I have yet to see an EFFECTIVE discount model that doesn't in some way sponge off the full service community....Interesting .....no?The problems that we see are from some so-called full-service brokerages and agents who try to make a lot of money and offer very little. They are having clients pay full freight for what really is discount service. This has confused the public and lies at the heart of the commission issue. It doesn't take many hosed clients to cause our standing in the eyes of the public to tank. That is a brokerage issue and NAR has to RAISE ITS STANDARDS as do brokerages.
I wish it was so simple.
I recently received a call for a cma and before I even went to meet with the potential seller. I did market research, went to the town hall and pulled the property file, paid for and made copies of the assessment card and tax bills, ordered and paid for the property deed. Drove by several comparable homes, called several listing agents to see how the activity level had been.
Prepared a general market summary, researched the neighborhood and then went to meet with the sellers. I had about 4 hours into it before I walked in the door.
Once there I did a walk about, measured all the rooms, took copious notes and listened to seller's tale of why they needed to sell. I had to put up with many interruptions and was finally able to walk out the door 2 hours later.
Then I needed to do the cma and come up a realistic market price. Probably another 2 hours worth of work before I could go back and present my findings. The presentation took 2.5 hours which included all the listing paperwork.
Maybe I'm slow but I have 10.5 hours into it before I even start the marketing...never mind my out of pocket expense.
I haven't seen a 6 % commission in years and all the real hard work begins once I get the listing. I could go on and on Jeff but I'm sure you know the drill.
I would definitely not be one to tar, feather, and blackball for your ideas on commission. I think if you can make a business model like this work, so be it.
However, I think you are leaving out one element of the equation, the human element. I know it is hard to believe sometimes but some agent do actually care about their clients. These agents want to see their seller clients walk away with as much proceeds from there sale as possible. These agents actually put the needs and wants of their clients above their own.
Not every agent is in the business purely for cash. Some enjoy working in this industry and feel that being able to feed thier family from it is just an added bonus.
X, Are you stirring things up again? I wrote a response to Mark Nadal's white paper last year and was fortunate enough to have Mark stop by and debate with me and a few others for a couple of days. He was supposed to be revising his white paper after that discussion:)
Anyway here's the link to that post and debate which is my response to this same old same old discussion.
Good to see you.
Very interesting post.
Even though I don't agree with everything you said... I still find it helpful.
Thank you for your opinions and comments. They are greatly appreciated.
=RonReed=
Whoa...I appreciate the very thoughtful comments.
Couple of things:
This post was not meant as an argument to the effect that real estate agents shouldn't be paid or aren't of value, but rather to bring attention to how the status-quo views the general, yet unwritten, commission policy. I have little doubt that each of you who has taken the time to respond thoughtfully is also an agent worth their weight in some precious metal.
The challenge, and thus the opportunity here is to substantiate your value in a manner different than the antiquated model that has been deemed impractical and wasteful from the people in the Ivory Tower, and resoundingly echoed by the consumer. I know that an individual agent never sees 6% but most people don't. I know that a good agent is the difference between getting what I want and what I'm willing to settle for. I cannot control public perception, even when I ran my own brokerage I had to battle consumer mis-perception on one hand and NAR realted vengance on the other. Talk about a lose-lose situation.
It is no secret that the titles Realtor and Mortgage Broker (or banker) are grouped in the lower echelon of 'respected professions' and it is for reasons that are well articulated by 'smart' people who spend months researching their work. Their work, right wrong or otherwise, resonates with a broad swatch of people, from high level government to 1st time home buyers. Again, I say there is opportunity here for agents willing to step out and address these issues head on.
@ Steve, "I would definitely not be one to tar, feather, and blackball for your ideas on commission" I'll have a crack at it, spent much time on this subject considering agents, the industry as a whole, and consumers... Get tarred and feathered once, subsequent blackballings are no big deal ;) I will say that I'm a fan of the 'Consultative' approach, but thats it for now...
@ Ruthmarie...Take a deep breath, exhale...well said :)
@ Monika...you need an assistant ;)
@ John "And I am so sure I'm going to get slammed that I almost wish there was a way to post this anonymously. " Revel in 'being slammed'! You are a forward thinker, so get used to it...
@ Bryan..all great points, the only thing we seem to disagree on is the % based commission model...
@ BB...I just like good feedback regarding hot button issues in real estate and mortgage (that's my conditioned response) ;)
I remember your post well...Hope you are well, as well...well then!
Very interesting post and comments. It seems like their is no simple solution to the dilemma, but as far as the question about the agents incentive to sell the home for $10,000 more or less...I believe the answer should be the survival of an agent's business. If the price of the sale makes the seller unhappy, they will most likely not refer their friends and family to that agent for future listings. Motivation in the real estate business must go beyond the simple dollars and cents of any one transaction.
Jeff - if someone came up with a model for selling homes that didn't sponge off the full-service industry and offered service that made sense for buyers and sellers alike, I'd love to see it. The difficulty is that all of the low-cost models depend on volume. To create that kind of volume, the ....ahem...agent - needs to be glued to a desk. Said agent also must cover a very large geographical territory in order to sustain him or herself. As such, they can't run around and take photos, go to city hall, do comps, call a bunch of agents who are selling in the area, take measurements, go to inspections and appraisals, hold open houses etc. etc.
This creates two separate problems, neither of them trivial.
1. If they aren't running around doing these things, how can they understand value? How can they be a local expert? They can't. First you run into the geography issue. Too big a territory makes you a jack of all trades, master of none. Even in the limited territory that I feel comfortable covering, I have a steep learning curve the minute I venture so much as a mile further out. Each city, town and village is an entity unto itself - with different property values, school systems, tax issues etc. A desk-bound agent is never going to be able to navigate all that. This is where you need boots on the ground. The first problem with these models is that their agents don't understand enough about the areas they service to be anything more than a paper-pusher.
2. Because they are desk-bound they won't "do stuff" that is quite frankly THEIR JOB TO DO. Inspections?, Appraisal?, Walk Through? , etc. etc. "Can you go for me? I'm a discounter and we don't offer that service."
Answer: NO!!! You have three choices: 1) Do your JOB and go yourself. It's not my fault you are willing to work for peanuts. 2) Have your client pay me a flat fee for doing YOUR JOB. If they won't we negotiate said fee into the contract 3) Tell your client to find another property because I'm not willing to do your job for free.
All of these discount models have proved one thing: There is no cheap way to sell real estate. It is inherently high-touch and emotionally charged and that's what makes it so expensive - its time consuming. You can't get around that.
The debate about commissions will always be a hot topic and you make great points about the need for professionals to be able to justify their rates instead of the typical scripts that have been well researched and are under fire as pointed out in your references.
I know several car salesman that used to make a ton of money in commissions before the access to information about the prices of cars became so transparent -- something that all real estate agents need to keep in mind.
Luckily, real estate agents have the opportunity to justify their commission rates and expect that topic to be more of a focus in the years to come.
In other words, it's going to take a lot more then just saying "I'm going to sell your home for the most amount of money possible in the shortest amount of time with the least headaches possible."
I'll never understand how one agent can represent the best interests of a buyer and a seller for the same property...
Jeff enjoyed reading your post. However this is how I justify my commission and I've used this analogy many times in my sales career.
There was this prospect that had a problem with their porch it kept squeaking and he needed it repaired. He had heard of this one carpenter that was the best at the job, but he didn't call him because he also heard that he was also very expensive.
So he ended up calling another carpenter that was a lot cheaper, the guy came out replaced the boards and painted them. An hour later the squeaking came back. So he called the carpenter back and he replaced the boards again and repainted them. And again the squeaking came back an hour later. They did this over again and the carpenter finally gave up, and so did the owner. Now the owner still paid for the carpenter's time and the owner wasn't very happy needless to say.
Two days after, the owner's wife questioned him about the issue, and he explained what happen, and she said why don't you give the other carpenter that you have heard so much about - a try! So he did, he called the other carpenter and he came out right away.
After reviewing the issue with the boards on the porch, he told the owner I need a new hammer and I'll be right back. The carpenter went and purchased a new hammer and stood up on the porch and slammed the hammer down on the board.
He waited 3 hours and there was no more squeaking. He handed the owner a bill for $525.00 and the owner got really upset and kept shouting, "Why is this bill so high". The carpenter said I be happy to explain it. The $25.00 is for the new hammer I needed for this job and the owner said then what the hell is the $500.00 for #$#%? And the carpenter looked him in the eyes and said "FOR KNOWING WHERE TO HIT IT"...
In other words you only get paid for what you are worth...
No one has managed to come up with something better...
But, the Stanford study is weak at best. In fact, the Madison, WI study is better, and one can drive a Peterbuilt through the hole in it. One of the things that RE Agents provide is a sense of realism. Hold out for another month on the $300,000 home to get an extra $10k? Maybe it really is only worth something to the ego. Factor in carrying costs and that extra money could disappear quite quickly... 3 months.
60 day listing? Should I spend $500 or $1000 dollars setting everything up if I may not have time for it to come to fruition?
I offer sellers the opportunity to have my do my half of the job for $3000. They would still need to pay a buyer's broker, but I will work for a flat fee. They cover their own costs for marketing, etc. Even when the difference is $10,000 and they know that they would only need to spend $1000 of it, they generally prefer that I spend the money and take the risk.
I'd be interested to see an alternative...
I was a licensed Real Estate Broker, but now I have an honest job.
I screamed this same thing all over the state and country and just like you I got tarred and feathered, blackballed, and I was already Hung!
ANYWAY!
The solution is simple. Dump the whole commission structure and start working like any other professional. Does your attorney and Doctor charge you a commission? They sure dont!
Each Real Estate Brokerage should have an hourly rate, probably on a scale according to years of experience or maybe just individully set. Additional charges for copies, pictures, faxes, yes, even phone calls (quarter hour). Mileage, heck yeah!
That's the way the real professionals operate!
While I am giving away million dollar ideas....
NAR, fire them all! Elect some new fresh faces and re-write the entire program. Instead of them promoting them to collect dues from you and make rules that keep them in business. HOW ABOUT? Turning their focus to fighting for your rights and your fees! That's what the UAW and the Teamsters do. Shouldn't the NAR reflect more of a unionized front, rather than working so hard to promote themselves and keep all the agents working against each other?
JMO, like always!
Jeff - We pretty much agree with Rich's first comment across the board. We are not enamored with what NAR does for us, and often are furious with them when they come out with something that tells the public what they know is nothing more than industry spin.
Right now we are doing a series of 5 posts on the value we bring as agents to those we serve. Our feature today is the second one of those, and it's primary purpose was to lead folks to a great debate about NAR's claim that on average we get 16% more than an owner can.
As for our fee for service, we are usually creative with that. Whatever the fee ends up being, it's dependent on the house, the listing price and the situation. We are also very much fans of variable rates based on performance.
cheers
Our Realtor friends would have us believe that their fingers are bloodied servicing the needs of their clientele. The whinings of these Realtors are the same whinings of any salesperson I've ever met: "if it weren't for me, the transaction wouldn't have happened". Well, the home inspector, the home stager, the MLS, the Broker, all believe the same thing! In my time on this earth, I've never met anyone who felt that they were overpaid! Three months after receiving the salary increase that they've prayed for, most employees get a feeling that they were worth more.
Back in the day when there really was a thing called customer service, and before computerized search engines empowered both buyer and seller, Realtors did slave away (kind of). In a capitalist economy the provider must depend upon his/her own ingenuity to provide a service to the market in a fashion that allows the provider to make profit. In other words: Realtors, you simply must use the tools that are currently available to run your businesses in a profitable fashion. If you are incapable of using modern day technology to your advantage, then the capitalist system (where only the strong survive) will do its work and your profits will be eaten by your inefficiencies.
Realtors would have us believe that their marketing expenses are exorbitant. I would venture to say that most of the homes that I service, have no 'welcome station', no fliers, no signage (except the sign in the front yard), and most are lucky to have a few copies of the MLS sheets. As a consumer I would welcome a menu (with posted prices), so that I could choose the marketing services that I feel best suit my needs. This notion that 6% is chewed up by marketing costs is absurd. Most agents that I know, scream about the fees that they pay to their broker, and yet turn to us (their clients) and screach that they can certainly not do a proper job for 5%.
While it is true that many listings expire, and are not renewed, no one forces you to accept a listing. I have(on rare occassion) had honest Realtors confess that their services would not match my needs. Professional Realtors can reduce their wasted marketing expenses by demanding that their clients present a property that is ready to be sold.
Frankly, some Realtors accept bad, problematic listings, because they recognize that acting as a listing agent, is far, far easier than being the buyers agent. Many Realtors recognize that by accepting even a bad listing they have a chance to create income. In a difficult economy having 'a chance' is better than having 'no chance' and so the Realtors limited resources are squandered under the premise that 'everything sells' . Of course, everything does sell if you mark it down enough. As a Retailer and as a consumer I can tell you that a $100 shirt has little appeal to me, but when you mark that same shirt down to $10 all of a sudden I see the virtues of the garment. As the price goes down, the lights get better. What was ugly at $100 is gorgeous at $10. Or, the more I drink the better you look <G>
The Real Estate Industry must retool itself. Realtors are not immune to the downsizings and threats that have faced all of our industries. Ultimately, much like the car manufacturers, department stores, etc... Realtors will develop a system that delivers product and service in a way that still delivers income and profit to themselves. Until such time, and in recognition of the seriousness of the current Real Estate 'correction', buyers and sellers will be searching to recoup their lost profits. Unfortunately for Realtors, their commissions present the most likely source of increased profits for the consumer.
Jeff...
(Insert 5 minute pause)
An identifiable problem without a viable solution. Yet. My actions will do the rest of my talking...;)
Jeff,
Great topic and excellent discussion. The link to the Stanford case study appears to be dead, if you have the time to check on it.
Wasn't it the Brookings study that suggested that the MLS offer of compensation has both propped up the "traditional" commission model and been a barrier to innovation when it comes to a alternative fee models?
As an exclusive buyer agent, I have been swimming upstream ever since joining this wonderful profession. In my view, the MLS offer of compensation, the doctrine of procuring cause, etc. are anachronisms from a bygone era.
I concur wholeheartedly with the sentiments expressed by Brian Larson in his brilliant series, the End of the MLS As We Know It.
Very thought provoking. I debate this often with my real estate hubby. I don't mind the traditional model per se, but I do have some qualms about it. Particularly... why should a 300k house pay $6000 more in commission fees than a $200k house. Most likely I won't do much different for either house as far as marketing (assuming neither is a very unique, strange home).
I tend to make my fees situational. A client I spend a lot of time with, who calls me 3x a day for updates, requires a lot of hand-holding, I want full price or over! But I do get gems of clients sometimes that do everything I ask, only need calls when there really are updates, and are just darn pleasant to work with. They cause me less hassles, headaches, and waste less of my time - i charge them less.
I can only do this to a certain extent since I'm required to give 3% to another agent. But I personally believe it's situational to an extent.
I'll wade in the water without a life preserver here...
ReMax allows agents to set their own commission schedule (as I understand it). My company has a set commission schedule that I have to follow. I work there by choice.
The system will change when change comes to the system.
You've hit the nail on the head. I hear it every week from people. They say they can sell their own homes. They are more than capable of putting out their own signs. They already know the value of their home because they had it appraised. They are more than capable of running their own adds. They prefer to show their own homes because then they are in control of who gets access to their homes. They say that if it takes two extra months to sell it themselves then it's worth it because they saved XXX amount of dollars in commissions and it's usually an amount more than they make at their jobs in two months.
I have said it before and I will say it again. The real estate market is in for BIG changes. The internet has a lot to do with it but people's attitudes are changing as well. It's why Walmart survives and everyone else falls. People want it all. They want it all now. They want to do it themselves which is why Lowes and Home Depot are such a success.
There are still people who need our help and I will be there for them until there are no more. I discount my commission when it is warranted despite agents griping at me about it.
Commission wars again? Please! Can't we all understand that EVERYTHING is offered at different prices. Restaurants, cars, clothes, houses, and (gulp) commissions!
My next comment would be to Jeff. You're working WAY too hard for WAY too little! Of course, I have a handyman I could describe the same way. I suspect your clients are getting a good deal, which isn't always the case.
I'm revving up my commission model to allow 3 tiers, starting at 6% and going up from there. Crazy, huh?
Jeff,
I'm so glad to see you have a viable solution coming. Don't keep us waiting too long!
A study trying to determine an appropriate compensation model by adding up the value of the services provided to an individual seller does not make sense. There are too many free services being provided that are not attributable to a single seller or buyer.
The idea that we can charge "fee-for-service", like a lawyer or an accountant, is not workable. I am a former CPA and I have filled out those fifteen minute increment timesheets. The basic problem as a Realtor is that you don't always have an identifiable client.
Who will I charge for the following tasks performed on a regular basis?
1) review of all new and expired listings from 3 MLS databases.
2) driving to preview new listings that are not mine, and for which I do not currently have a buyer, but are in an area that I need to remain familiar with.
3) sending out marketing emails to my email list in hope of generating buyer relationships to benefit a future sale for one of my sellers, or very possibly someone else's seller.
4) setting up and preparing for a listing appointment after which I may or may not get the listing.
Who will I charge for the buyers that don't buy? The callers that take up my time and then disappear? What if I take a buyer to six houses, 2 of which are mine, and 4 of which are co-brokes? Do I bill 2/3 of my time to the other agent's sellers? What about a seller who won't accept an offer .5% below the asking price and ends up expiring? Who pays?
I don't mean this as a rant, although it has turned into a bit of one.
I think the NAR often does a poor job representing us, and I don't advocate clinging to a particular commission rate. But the idea that you could add up what a Realtor does, and identify the right amount and person to charge for each piece, is not congruent with reality.
This is a risky business. We get paid to take a risk and customers and the media only see the upside: the day we walk away from the closing table with a check that looks awfully big to them. Here are a couple of realistic media headlines I'd like to see:
Breaking News: Thousands of Realtors Worked Hard Today; Hoping Someone Will Pay Them Sometime
Latest Survey: 90% of Sellers and Buyers Would Never Take a Job That Doesn't Have a Regular Paycheck
And here's a study I'd be willing to fund:
What's An Expert Worth?: Assessing the Value of Services Not Attributable to Specific Clients
This is an interesting discussion, and definitely one we should be having, but commissions are not the villain. Commissions are the most appropriate way to get paid in a business where:
1) The customer for a large portion of the work performed cannot be identified, and
2) Goods and services are provided in advance to customers who may or may not pay for them.
Thanks for the great blog!
Judith
Salespeople on a car lot are paid a % of the dealers profit and a flat fee for each car sold. Say $350 for a sale plus 25% of the amount over invoice. Some dealers will go further and say Corvettes (or this year's gotta have it) pay a lower %. Listing agents can do the same for their pay. This would help us to rid the marketplace of overpriced listings and get the inventory/sales to balance.
Another productive solution is for sellers to pay a non-refundable retainer plus a lower commision for a agreed upon list of marketing services. I also think that buyers could pay a retainer or hourly rate to their agent that can be refunded at closing (since nobody wants to diminish their scarce downpayment funds).
This type of pay scale would reduce the casual buyers and browsers therefore making agents think they are losing business, but then they will find that they are very productive when they are at work. Increased efficency is always a good thing for those who are at the top of their field.
The seller's retainer and discount on commision can be implemented by any one agent without chaning the rules for all. Changing the buyer's relationship to agent would need mass approval though.
Brett is at it again.....
I don't think "consumer" aka Brett would like it when they were handed a big bill for house showings, CMAs and the like. That's what would have to happen if the commission system was abandoned.There would be a ton of up-front fees that the public would NOT be prepared to pay.
Whats getting misinterpreted in some of these comments is that I'm advocating that a Realtor be paid less for their services, while in fact, Im suggesting that one find a different way to be paid for their services and value.
Commissions aren't the problem, the manner in which they are charged is.
There are a few comments that lay out some tasks that a Realtor typically does without the promise of a payday...what is the value of these tasks?
Start thinking how you can get paid for services performed outside of this antiquated % based model.
IMO a retainer is not out of the question. If someone is serious about buying or selling a house, $500 up front shouldn't be an issue and will likely keep client quality levels higher.
Gotta go, i shall return for more..
Judith Reppert, I can see that you aren't very smart. You ask, "Who do I charge for internal work?" Hummn? You don't charge anyone for your work, you charge others for work that are provided for them. A restaurant doesnt charge you for unloading the truck out back, they figure that into "Costs." Hello?
You ask, "who do I charge when a buyer doesnt buy?" Good question, how about the buyer, that didnt buy? Did the buyer recieve a service from you?
That's the problem with "realtors" they are too hung up on working for 100 people during the course of a year and getting 20 fat paychecks and then dividing them into several piles.
What if Attorneys did that? Lets say that I am sueing you and that I am paying my lawyer but he is required to share his money with your lawyer.....win or lose. That might not be a perfect example to forward my point, but maybe you can grasp it.
What I am getting at is, why share, wouldnt it be better if a person paid for services recieved? What if you were in wal-mart and they locked the doors and said ok folks, we are going to tally all the goods being checked out right now and divid the bill up amoungst all the people in here equally. Plus though in the fact that Judith used our restroom while she was shopping today. Woudl that be fair?
I am just saying that a seller who sells his house with you should not be responsible to pay your expenses while you are out showing houses to a buyer who is not going to buy.
Like it, Lump it, Dump it, or Rump it.......The real estate commission system as it is currently setup, STINKS!
I thought I should have included an example:
House with high end of a CMA is worth $250K, comparable distressed homes going for $200K.
Seller pays 1% ($2500) to list agent upon signing sales agreement, and further agrees to pay 10% of sale price above $200K (just to the listing agent).
Now does that seem like a fair structure to you? Sellers will research and be invested in selecting the right agent. They will demand to know what services they are buying, and the agent is very motivated to get the best price possible.
Ruthmarie, I'm not who you think I am, I'm a consumer who does not need any exposure, and furthermore I'm a CPA whose strongest subject was cost accounting. I really am a buyer too, looking at houses all day tommorow with an agent I found in activerain.
Ruthmarie...I disagree.
I believe a well crafted compensation plan that called for a small retainer to keep the real estate professional vested and engaged would be resoundingly accepted by consumers in lieu of the current model. There are obviously many more details to all of this...all to come.
Its called maintaining your professional knowledge. My bookkeeper doesn't charge me for staying current on Generally Accepted Accounting Principle and my tax person doesn't charge me for staying current on tax law. Its a cost of remaining competitive.
I guess you'd charge yourself as a business expense, just like any other business.
Let me give you a scenario -- you work in advertising, or printing or just about any other field. A possible client calls you and says "I'm considering using you for service X. Can we meet on Thursday to discuss it?"
You spend time preparing documents showing your qualifications, past successes and why they should use you for that service. Do you walk in with the presentation to convince them that you are the best person for their needs and also hand them a bill at the same time? "Here's my presentation and the bill for preparing it." I think your odds of getting the business just went to zero. Its a marketing expense, a price you pay for being in business.
Well that reads like a discarded CE course. Way to much information to actually be required reading. I don't disagree that there is a problem. Agents don't seem to understand that in order to justify their cost, they have to understand their cost. Too many folks in this industry still operate without any concept of cost of sales, marketing, etc and how generally accepted concepts of bookeeping work.
There is no denying the facts presented. I am surprised that Mr. Corbet didn't delve into some of the other areas that seem out of kilter in this industry.
All things remaining relatively equal...home prices doubled in many areas over the last 5 years. They have come down but they still are almost twice what they were. I am just a simple guy but it would seem 6% of the price today is twice what 6% of the price was five years ago. Agent income doubles. I live and work in one of the most prosperous areas of the country. I don't know to many people that have seen their income double over the last five years and I certainly can guarantee you that the government pay scale has not doubled over that period. We just grin and head to the bank.
No one discusses the cost of selling a home. I am talking about what is the real difference in cost between selling a $500,000 home and a $250,000 home. Is it really double? Are your ads twice as big or do you run them twice as often? Does the MLS charge a different rate based on the list price? If your cost remain the same, where does the added value come from? Do you wear nicer clothes when holding the $500,000 home open?
No one dicusses the cost of representing buyers. Home prices have doubled. Do you drive twice as much? Do you visit twice as many homes? Do you have a more expensive car when showing higher priced homes? It would seem that buyer costs are relatively the same. Where does the added value come in there?
I don't have answers. I do rebate. Two reasons, it keeps me competitive and secondly, I find it hard to justify that my income can double when the rest of the workforce plods along. I think this post opens other wounds.
I find it sad that these debates have to occur here while the talking heads at the NAR focus on the long term value of real estate. It seems the good folks at Bear Stearns were listening.
I doubt it very much Jeff.
Most people are very risk-adverse. They want the agent to take on ALL THE RISK and the mindset for that is firmly established. Its almost ingrained in the DNA of must client's that they pay nothing unless it closes. Trouble is, they want a lot for free and don't want to PAY for the risk we incur by working this way. You'd hear screams of protest immediately if the system changed.
In any case, it would have to be a quantum shift that ALL BROKERAGES would do at once. How would you manage that? Otherwise what you would have is two models. The bottom feeding consumer wouldn't care. They would use a full commission agent to show them homes - for FREE - and walk right over to a discounter/rebater for the closing. That's been one of the issues with Redfin. Several agents found that they were being used while the "real agent" sat back in a chair and waited to collect.
@ John...You make some solid succinct points that were covered in the other articles that this post was based off of. I would (and have) delved into other areas, as you suggest, but then the post would have been taken in a more defamatory context, regardless of my intent.
If you read my (outside) blog you will find that i've addressed the problem with traditional real estate economics on the highest of levels, for almost 2 years, going so far as insinuating that politicians make 'grease money' from real estate lobbyists (looking for zoning approval etc) and that on almost every level of government the NAR is represented in some way shape form or fashion.
For what its worth, I believe your assessment is spot on. Practical economics, for the most part, do not exist within the traditional real estate business model and this fact bleeds down infecting other facets of running a business: Sales, marketing, proper incorporation, taxes, basic income, expenses, P&L's, balance sheets etc etc...All either ignored or addressed improperly with little to no thoughtful attention. Herein lies the problem for most practicing agents...they've been taught how to preach NAR, not practice 'good business' and certainly not to explore 'different' business.
The NAR has created a legion of 'followers', breeding 'yes men (and women)' who carry out their bidding and rely on the membership locking arms over the type of banter being thrown back and forth right here. A 'Just say no to change' attitude. Unions have their place and purpose but this one is choking out it's own members.
I'm an entrepreneur, not by choice, its the way I'm wired so I adapt to change easier than most. In my head, to identify a problem is to identify an opportunity. I started 3 businesses that revolved around the industry of real estate (and mortgage) and got to be so completely repulsed by the way 'things have always been done', dismissing and blackballing a (semi) reasonable voice, being told to shut up and not start trouble, that thats exactly what i set out to do...shake up these industries, grab them by their proverbial head and scream "Wake Up!" I have never seen two industries in such a state of denial. Consumers deal with a Realtor and mortgage professional as a necessary evil on the best of days. Don't believe me? click Harris Poll.
Agents need to open their minds, unhook from the ether hose and realize that they arent wearing the New Clothes Emperor NAR provided, they are naked and everyone's laughing.
I don't pretend to have all the answers, instead I try to raise good questions and offer potential solutions in hopes that more people still inside these industries will do the same...Innovation rarely comes within, a tried and true adage. The larger and more influential the institution is, the less likely they are to change. It's ignorant to look for one alternative model or two or three...the title of the post is: Real Estate Professionals Need a New Compensation Model, One as Local as They Are. Do what works for you, the market will respond accordingly.
This by no means is directed at every real estate professional, there are many that get it and are trying to make a difference, alas too many still do not.
Hi John V, thanks for your comments!
I do think that there are significant differences between what an accountant does to maintain professional knowledge, and what a Realtor does. First, accounting is an extensive, complex and static knowledge base to which a low relative volume of new but complex rules and situations are added. Second, your accountant and preparer do charge you for maintaining their professional knowledge by charging a high hourly rate that reflects their hard-won expertise.
As a Realtor more of the knowledge base has do with a high volume of simple but fast-moving information. For instance, if I found that one of the basements in a previewed listing was wet today, I may need that knowledge for a comp six months from now, I may need to warn a buyer tomorrow, or I may never need it at all. But I still invested time in gaining that knowledge.
Our sometimes broad, sometimes spotty, sometimes amazingly detailed knowledge is not easy to value, because the individual components of the knowledge, e.g.: "This basement leaks", are not complex and may be completely irrelevant forever.
Because of the nature of the knowledge base, I believe Realtors spend a greater percentage of time figuring out what's going on for the potential benefit of all present and future clients, as opposed to doing something about it that a reasonable client would accept as billable.
Your second point is absolutely right, marketing emails are a business expense. The issue I was trying to raise is, is it likely that someone would pay for them directly? No, because they're not directly sourceable to a client. Being paid on commission makes it worth our while to perform these and other unbillable activities (just as marketing and administrative expenses are rolled into any company's retail price).
In regards to the hypothetical marketing presentation, we're in agreement. We don't and shouldn't bill for services like a CMA "as rendered"...but instead take the risk and get paid via commission, if all goes well.
If I thought we could bring the market to a place where the hourly rate was high enough to justify the unbillable hours and still turn a profit, maybe that would work. I just don't think it's going to happen. And I don't think an employee/wage real estate corporation scenario works well either for various reasons.
I appreciate your comments. No solution is perfect, but I believe some kind of sliding commission structure fits the industry better than a fee-for-service structure. It would be nice if commission rates weren't taboo to discuss among brokerages, too. God forbid, we might not be engaging in illegal colluding; we could be trying to make the market more tranparent for the consumer.
To the anonymous person who decided I am "not very smart", I stopped reading at that point and checked for a name. If you can't sign your name to your thoughts, I won't be reading them.
Meanwhile, I'm off to perform some non-billable but useful activities (as opposed to the fun but entirely unbillable and probably unuseful activity of enjoying this thread).
Jeff, are you posting another one with a proposal or series of pay possibilities for discussion? That would be cool.
Judith, I just have to say that I think your response is well thought-out and reasoned -- although my bookkeeper and tax preparer might argue with that. They do have to have some specific knowledge in order to do their work for me professionally. In fact, I chose them because of their specific knowledge of the real estate industry -- in a way, its similar to us having to have knowledge of our local markets. I wouldn't choose a tax person with no knowledge of tax implications of real estate just as I wouldn't choose a real estate agent with no knowledge of their local market. But that's splitting hairs (or hares, depending on how you feel about rabbits).
Believe me, I'm not saying that the existing commonly used commission structure is, by any means, the "be all and end all" of how things can, should or will be. I'm just saying that we need to recognize as an industry that things will change. How they will change -- I'm not sure. I think greater transparency is going to occur, the question remains is "how will it happen".
You are obviously a talented and committed person -- I hope to have a referral for you one of these days, regardless of how we both get paid! I think you'd do a great job for the client.
Fabulous post Mr. Corbett!
I need to read and digest more fully, but wanted to respond to a few of the comments right now, not the post...
@John Dirgo: "I can't speak for the nation as a whole, but I know that the time from taking a listing to getting into the larger real estate magazines here averages 45 days from decision to run the ad to the date the ad actually is in the magazine and being distributed. "
So forget the large real estate magazines. I can put a listing on dozens of internet sites inside of 20 minutes. And I can update those dozens of internet sites with a few keystrokes. What do you do with a print magazine ad if you have a price change?
"Some clients do want you to have open houses all the time (a cost of both time and advertising), pre-screen all clients (even buyers represented by other agent), be present at ALL showings, have custom signs made for their property, specify where they want it advertised, hold multiple broker opens with refreshments, etc."
I tell potential sellers up front EXACTLY what they will and won't get. That includes open houses, broker opens with cookies and more. If you spell it out up front, in writing, you don't get these time-wasting demands. If someone demands something that doesn't fit our marketing model, then they can find another agent.
@Monika: "I did market research, went to the town hall and pulled the property file, paid for and made copies of the assessment card and tax bills, ordered and paid for the property deed..."
Don't they have the Internet in NH? :) You really have to go to the town hall and physically pull records? Bleech. Move to Phoenix! ;)
@Barry Smith: "Jeff, agents determine the listing price, but agents don't have much control over the selling price"
Wow. Agents determine the listing price? My world is apparently *completely* different than yours!
@John Dirgo again: "My bookkeeper doesn't charge me for staying current on Generally Accepted Accounting Principle and my tax person doesn't charge me for staying current on tax law."
Sure they do. It's built into their pricing. Using your argument, the pharmaceutical industries don't charge for R&D either. No one works for free, including agents. All that "free" work we do (CMAs, IDX access, etc) is (or should be) built into out pricing models.
OK, there are too many great comments here to go into them all.
What I'd like to know is this. Who decided (and when) that "6%" was the magic number? (Yeah, I know, it's negotiable, and the average nationwide is now something like 5.4% if I recall correctly). But why 6? Why not 5, 3, 2.68, 8, 9.32? Someone, somewhere, must have said "6% it is because...."
Because what?
Thx Jay :)
The question you ask...if I may venture an answer?
You can't even try to explain it, no Realtor should try to at least...because if one does, its an admittance to collusion (allegedly)...and that would be bad (fact). 'It's negotiable' is the Pavlovian response-lol.
This is what my attorney friend told me awhile ago anyway...Jeff - yeah, rhetorical question. Truth is, I doubt anyone is left alive that knows the real answer...
Judith Says.... " To the anonymous person who decided I am "not very smart", I stopped reading at that point and checked for a name. If you can't sign your name to your thoughts, I won't be reading them. "
Judith, you squelch the opportunity to grow? By not reading my explanation you are implying that you are as smart as you will ever be and that you couldnt learn anythign from my comments that would make you a better person. Maybe not a better person, but a person with some valuable information that could open their mind a tad, to some new ideas.
You see, people like you are exactly what is wrong with the system. (tunnel vision) (it has always been like this, so this is the way it has to be) Thats right, I said people like you!
You may have also learned that I am no longer a real estate broker, I have an honest job now! I still practice real estate every day (at least 4 days a week), but I get a salary and full benefits and all the government holidays!
This post and comment stream remind me of two quotes about democracy by Winston Churchill. The first one goes like this:
'The best argument against democracy is a five-minute conversation with the average voter.'
This could be restated in our case as:
'The best argument against the commission fee structure is a five-minute conversation with the average seller prospect.'
The next one is:
'Democracy is the worst form of government except for all those others that have been tried.'
This would obviously be:
'The commission fee structure is the worst form of Realtor compensation except for all those others that have been tried.'
Not many other fee structures have been tried on a large scale, so the quote doesn't quite fit, but I think there is something to it.
The reason I think commission based pay has lasted so long is because nobody feels like it's coming out of their pocket. Sellers won't admit this, but they also don't want to pay up front for anything. The commission check is issued by the Title company (at least here in California). The seller only sees it as a deduction on their net sheet. It's money they never received, so it didn't actually come out of their pocket. It's a completely different feeling writing a check for 6%, versus having it deducted from money that you receive. Have you ever received a pay check? Most people look at the net amount and don't pay attention to the deductions. Every week taxes are deducted - usually a significant amount - couple hundred dollars anyway. People complain, but they live with it. Then tax time comes around and they have to write a check for $1000.00. The world comes to an end! It's a completely different feeling.
I love this topic. Very thought provoking for so many of us. Thanks Jeff!
Hi John D,
Thanks for the compliment, and certainly no insult intended to your accountants! It's just different, that's all. Should any one of my Missouri customers ever be so lucky as to move to Hawaii, I will have send them your way. Meanwhile, may we both prosper under whatever pay structure turns out to be the wave of the future.
Jeff, thanks for a great post and thread. I'm exiting now, but looking foward to your next.
Hey Jeff,
This debate has been going on for years. Still........ no viable solution. Even e-bay uses a graduated percentage scale for charging sellers. I don't have a viable solution either.
I had a great debate with a seller once on an empty lot he wanted to unload. We finally came up with a cost (marketing costs and my time) + a bonus for selling it within a certain time frame. I can see using that option for sellers who feel that a flat 6 or 7% is unfair. Sometimes it is. Sometimes it isn't enough compensation for a realtor who does work long hours.
I'll be waiting for your next post on what the viable solution will be.
Karen you have heard at least hundred 'viable' solutions over the years. You personally just mentioned that you have used a 'viable' solution. The problem is that no solution is 'viable' with just one application.
I maintain that the problem is that NAR is working very hard to keep ALL agents working against one another instead of unionizing to become a strong unstoppable force. If NAR worked like the BAR, everything would be (well forget that thought) but you know what i mean!
NAR like the BAR ..... what a thought!!! I am a friggen ginieus!!!! LOL
I just came back to take a look at the comments since I previously commented.
There are a couple of things that come to mind. The first is that here in GA, we are not allowed to have a listing where we get paid over a certain price. It is referred to as a net listing and is against the law... license, gone.
The 6% figure seems to stick because it works. Higher causes more people to balk, and lower cause more agents and brokers to go out of business. Look at many of the discounted firms. They have to dramatically cut services to get under 6%... and after a while they just fade away. Heck, even at 6%, most agents can't compete.
I will say that if you want to see an increase in efficiency, have fewer agents. If there were 10% as many agents, they would start fighting for market share, and they would do it by offering up some of the money they would save on economies of scale.
But, I would really like to see a model presented that wouldn't be illegal in half of the country.
Jeff, Jeff, Jeff...
Good to read your always interesting voice on AR...oh, and the new photo is pretty good too. :)
Just a little something for you to think about from your blogging friend in Bellingham, Washington (where we don't use Real Estate Attny's to do 99% of our transactions.)
You missed a tiny, itty-bitty, teeny-weeny, 'hidden' cost to our business called LIABILITY FOR THE TRANSACTION(!!). (Wish I could make the exclaimation marks BIGGER...drats!)
Hey, I can see how you missed it. It's the same thing as forgetting that you have airbags in your car...until you get in an accident. And then, aren't you glad that you decided to pay more for the 2006 Volvo...rather than getting the used 1982 Supra with the awesome gas mileage?
When someone hires a PROFESSIONAL Realtor (that means more than 3 years in the business...people) to navigate their transaction...with them...to advise them, they have, esentially purchased a Kevlar vest.
What is the cost of safety? And how much will it cost the Realtor if they ever have to stand in front of the Liability Bullet? (I guarantee you, it will be WAY WAY WAY more than the 6%, or whatever, commission they have split and split and split.) Live good. Be happy.
-Mimi
Always appreciate your comments and point of view Mimi. You make good points...
Doesn't E&O insurance cover this sort of stuff?
E&O is just that..."errors and ommissions". If I miss writing a date on a contract inadvertantly, or something like that...well, then then E&O kicks in.
If I screw up a deal...if I don't read the title and miss a major easement issue, if, if, if, if...there are a BILLION "if's" that can get an agent in trouble, well, you are on your own! E&O will not cover blatent idiocy.
The law changes so fast that it is hard for a seasoned professional, who has a penchant for over-education (Uhhh, that would be me...) to keep up with all of the contract law that is in effect around our Purchase and Sale Agreements. A buyer or seller without representation, will still be held to the standard of the law.
Hiring an agent takes the liability monkey off of the client's shoulders.
-Mimi
Ya gotta love those agents that insist on this trade being touger than rocket science!
Face it, it is a job that requires 2 full weeks of training, plus an additional 8 hours per year. WOW!!!
I heard someone mention a professional agent is one with 3 years or more experience! That must be how much experience that particular agent has, because I would say you need over 10 years to be the best!
It is funny when you take a step back and look at it, the real estate industry byinlarge is filled with losers who couldnt find a real job. Also some retirees who didnt like greeting people at wal-mart.
Be honest with yourself, privately in you own home, why are you in this game? Think back, when you first got your license, was it just a part time gig? Maybe you had just been laid off and couldnt find a job? Me, I had just got out of the military and it seemed like a good easy job. Where were you and why did you jump in?
I say if you cant find a job, this is as good as you can do, fine, be the best you can be. But dont go around like you are packing double phd's or anything like that. You are showing homes that you could never afford to live in and your customers know that!
For what it is worth,
You sound like a very bitter Realtor, that has found little success in this industry due to your overwhelming congenial attitude!
Ray
Well, Ray you may be right. I closed 13 doubled sided deals and 7 single sided and made less than $73,000 for 2007. I admit that I am just an average Realtor working with a High School Education, plus the 2 weeks Realtor Training. Got my first license in 1997 and I do find that I am very bitter! Bitter about other agents walking around like they are packing double phds and doing a job that a trained monkey could do! It isnt rocket science, after all you do it! (In this case, the word "you" will apply to YOU (whoever is reading this RIGHT NOW!
BUT
I do believe the NAR should spend more time and more of our dollars representing US rather than representing themselves! I do think a payscale overhaul is needed and the only real solution I can see is to go to the same payscale that attorneys use. It's simple, Its do-able!
For what it is worth!
>>I'll never understand how one agent can represent the best interests of a buyer and a seller for the same property...
Its an unusual position to be in. New Jersey supports "dual agency" and I have been in this position quite often...3 times so far this year. I am finding that no matter how hard I try to be fair, either the buyer or seller feels that I am favoring the other.