real estate commissions

Give consumers what they want, ask for more in real estate commissions

sale Give consumers what they want, ask for more in real estate commissions

An innocent question posed in a Facebook group this morning was about the 6% commission debate and why commissions are 6% if it’s a myth. It is a simple question with a simple answer that I can give because I am no longer a Realtor, and I’m absolutely entitled to my opinion whether you like it or not, as are you.

The 6% isn’t really a myth, albeit the average actual paid real estate commission is much lower at around 5%. It is a fact that the commission is negotiable, but what consumers and Realtors have never understood is that from a sales perspective, that 3% per side has become more of a fictitious floor than a ceiling. When you ask a Realtor why, quite honestly, no one really knows, but the default knee-jerk response is, “but commissions are negotiable.”

Sure they are, it’s an absolute fact, but again, from a sales perspective (a lesson for any sales related business, not just real estate) negotiating from the floor is a failed proposition as a business.

Sure, people like to say it’s so easy to list a property because they have an iPad now, and possibly a responsive MLS they can enter data into, but quite frankly (and I know listing agents will mostly agree, or at the least successful ones anyway) the expectations on listing a property have grown exponentially, as well as the expectations on the property agent themselves. The amount of hours it takes to actually hammer a square transaction through the round hole of closing has indeed increased tenfold – this is just a round number factoring shortsales, troublesome financing, or combating a neighborhood marred by failed mortgages and foreclosures.



Advertise at AG

Technology has made this housing crash more bearable, not easier, so why haven’t real estate commissions increased tenfold? They haven’t, yet there is still this burning need to negotiate from a floor – do you think your home seller respects this? No way, they love easy prey, sucker.

As milk prices have increased, gas prices have exploded, the cost of paper, ink, technology, supplying real estate porn to aggregators, the costs of featuring property within online environments and so many other factors of day to day life and business have risen due to the cost of doing business, yet real estate commissions have remained the same – around 5%?

These costs have to be passed on somewhere, and to be quite blunt, volume listing of property is costly and in high demand – just ask Trulia, Zillow, and Homes.com and others why these portals are not out acquiring their own property listings? Their answer will be that it’s not profitable. And why aren’t consumers uploading their own properties for sale in greater numbers? Because in the end, real estate search sites cannot support the consumer demand side in service of the listing, and that’s a fact. Instead, that’s laid on the backs of the listing agent and broker in their model – another cost of doing business.

So, in summation, I’m not going to tell you what you should be charging as a real estate commission per side, but I do think listing agents that are really in business have to look at the reality of the cost of doing business. Buyers agents say every day that it’s easier because of technology, but that’s not true of the listing side.

It wouldn’t surprise me if in this very year you don’t see listing brokers increase their commissions for their side of the transaction and lower the buyer side offering, and if they are the smart sales professionals I believe them to be, that fictitious floor and cieling could burst upwards to 8 or 9%, and why stop there? In some ways the cieling is regulated, but I’m not sure that’s really been challenged in court. If you’re truly negotiating commissions, shouldn’t you negotiate from a position of strength? It’s just good business.

So I say that each broker needs to do a real analysis of their business models and listen to their consumer – they want to negotiate, and it’s about time listing brokers gave them what they’ve asked for.

As AG's Founder, Director & Publisher: I've dedicated the past two decades to focusing small, medium and large businesses on consumerism, consumer needs, trends, and what consumers find valuable within the user experience. I founded AG in hopes of furthering your business growth. I hope you enjoy AG, and that you will reach out if I can help your company or association communicate it's value.


  • http://bawldguy.com Jeff Brown

    Not sure what’s ‘regulating’ commission ceilings, unless you’re referring to market forces.

    Though I’ve known a few top producers who consistently get 7-8% on a large portion of their listings, since the late ’90s, they added value in return.

    I can’t see commissions rising, at least not industry wide. Just don’t see it.

    • http://agbeat.com Benn Rosales

      Nope, not market forces, they’re (regulation) real life reality on the ceilings on builders, and lenders that red flag transactions in residential real estate. I’ll investigate a little more and bring you a case study as I’ve had to deal directly with this issue. :)

      • http://bawldguy.com Jeff Brown

        REO/ShortSale specialists have long told me about lenders ‘red flagging’ commissions they feel are too high. That’s ‘market’ forces, imho. They’re the 800 pound gorilla in those transactions, so the brokers knuckle under 99% of the time.

        There’s no gov’t agency of which I’m aware telling brokerages how much they can charge. Have I missed a new development? Thanks

        • http://agbeat.com Benn Rosales

          This is another article all together, Jeff. :)

  • http://firsttimehomebuyersnetwork.com Greg Cook

    Benn, in markets dominated by REOs and short sales. the 3% is the ceiling not the floor. The banks dictate the commissions paid and they have absolutely no desire to pay for services rendered.
    The “wholesale approach” of awarding listings makes the concept of “value added” as archaic as a rotary phone.

    • http://agbeat.com Benn Rosales

      In that case, you would have to determine it by the hourly rate, and if you’re making less than minimum wage per unit on a case by case basis, and being required by a non-human, ie, a corporation to earn a wage less than the minimum based on any requirements set by that entity that would require you to work more than 40 hours in a work week, then you could potentially be seen as an employee and demand over time and benefits by that employer.

      Now if all you’re required to do is enter it into a database, and put up a sign, then yeah, 3% is a good day when and if the deal gets done – ever.

      Again, It’s your business model, and your decision, but in macro there is no shortage of properties that need to be sold making it even more competitive and more valuable.

      • http://agbeat.com Benn Rosales

        *it being you.

  • http://teardowns.com/ Brian Hickey

    Benn,

    Hope you’re right, though IMO the real estate transaction model is headed more towards direct-connection between buyers and sellers (of course, agents may play a part on one-side or the other).

    Under this model, which is perpetuated by the Internet, commissions will head south, possibly big-time.

    We’ll see.

    Thanks,

    Brian

  • Pingback: Linda Fogarty

  • Pingback: LuxInvestor

  • Pingback: The Global Agent

  • Pingback: Real eStef

  • Pingback: Rick Gorod

  • Pingback: Dwayne thomas

  • Pingback: Bobbie Vansickle

  • Pingback: Property Torrent

  • Pingback: RE/MAX Prosperity

  • Pingback: gabpinello

  • Pingback: RealEstate.com

  • Pingback: corey mccloskey

  • Pingback: iPlayerHD

  • Pingback: Give consumers what they want, ask for more in real estate commissions – AGBeat | Realty by Zip Code

  • Pingback: USHUD.com

  • Pingback: Okan Apaydin

  • Pingback: John M. Cameron

  • Pingback: John M. Cameron

  • Pingback: John M. Cameron

  • Cristine Gritz

    When we finally get to closing…we have made about a dollar an hour!!! LOL We spend a lot of time and money on our clients. It takes at least 30 days to close. We don’t make that much in the grand scheme of things. How many slam dunks do we get nowadays??? Not many. Buyers take their sweet time and Sellers want to price their listings too damn high. 3% just isn’t enough as far as I am concerned!