And some ask why the government is so fixated on organized real estate. It is because of this mindset and the audacity to shout it out to the world…
I tactfully tell my sellers if I reduce my commission to 4 percent or 5 percent, the buyer’s agents will show my listings last only after showing the full-commission listings. Whether it’s ethical or not, that’s what happens.
Full article on Inman (subscription required after a day)
-Russ
Is the presumption in this case that an agent was just sitting on the side lines with a buyer waiting for the commission to go up on this particular house? I think the house probably worked for the buyer regardless of whether the commission was 7% or 6%.
In other words, it’s baloney to believe that the sales commission increase was the factor in selling the house. The house was the factor.
You are correct Russ. The mindset is clearly and innately woven into the culture.
Actually the whole Inman Article AND the quote in the above post is incorrect. Just because the total commission is 5%, doesn’t mean the Buyer Agent Fee is “lower”. Most agents who take a 5% listing will keep the seller’s interests intact by offering 3% for agents to show and sell the home and reduce the listing fee to 2%.
To represent the fee as a single percentage is misleading. Many Agents who take 4% listings (for builders mostly) will still offer out 3% and keep 1%, so the seller is not disadvantaged. Same with 4 1/2%, with 1 12% list and 3% “co-op offering”.
It is very important for sellers to know who much the offering in the mls will be. Even a 7% listing could be 5% to the lister and 2% offering. No seller should sign a listing contract without knowing how the total fee will be split between the listing company and selling company.
It is high time everyone had “the audacity to shout it to the world” so that the general public toally understands how commissions work, and how they can be negatively impacted if the listing side keeps too much of the total fee. Keeping everything “secret” has not been to the advantage of the consumer to date.
Actually the whole Inman Article AND the quote in the above post is incorrect. Just because the total commission is 5%, doesn’t mean the Buyer Agent Fee is “lower”. Most agents who take a 5% listing will keep the seller’s interests intact by offering 3% for agents to show and sell the home and reduce the listing fee to 2%.
To represent the fee as a single percentage is misleading. Many Agents who take 4% listings (for builders mostly) will still offer out 3% and keep 1%, so the seller is not disadvantaged. Same with 4 1/2%, with 1 12% list and 3% “co-op offering”.
It is very important for sellers to know who much the offering in the mls will be. Even a 7% listing could be 5% to the lister and 2% offering. No seller should sign a listing contract without knowing how the total fee will be split between the listing company and selling company.
It is high time everyone had “the audacity to shout it to the world” so that the general public toally understands how commissions work, and how they can be negatively impacted if the listing side keeps too much of the total fee. Keeping everything “secret” has not been to the advantage of the consumer to date.
Tim,
If a buyer says “I want to see THIS house” and the offered fee is insufficient, let’s say $100 to make the point, the Buyer Agent clearly has the right to negotiate the fee with the buyer before writing an offer on that house, and before even showing that house.
The buyer’s option is to go to the listing agent direct, and not have separate and exclusive representation. If the buyer won’t pay for their own representation and the seller won’t include it in the offer price, the buyer has to decide if he wants to be a FBAOR (For Buyer At Own Risk).
When the seller refuses to allocate an amount for the buyer’s representation, and the buyer has already indicated in the initial interview that they are not willing to make up the difference between the offered fee and the agent’s minimum fee, then the “$100 offering” house will not make “the cut” when the agent decides which 6-10 of the 60 available to show today.
I’m confused? Is the Buyer Agent expected to work for free, if needed?
Russ,
I’m confused about your post.
Are you criticizing the mindset of the agent or the fact that he said what he did publicly? Are you suggesting that this kind of attitude is why the DOJ is after the real estate industry? I understand that what this agent said may be unwise, but is it a potential violation of anti-trust laws too? Just trying to get clarification, as I find the matter confusing at times.
Thanks!
Russ,
I’m confused about your post.
Are you criticizing the mindset of the agent or the fact that he said what he did publicly? Are you suggesting that this kind of attitude is why the DOJ is after the real estate industry? I understand that what this agent said may be unwise, but is it a potential violation of anti-trust laws too? Just trying to get clarification, as I find the matter confusing at times.
Thanks!
Marlow,
First, I don’t believe that what this agent said amounts to an anti-trust violation. It does, however, epitomize a hubris similar to that which apparently took down folks like Ken Lay. You can almost picture this agent leaning over to their seller client and whispering in their ear, “Let’s just play the game and you can sell your house.”
I believe the government is attacking organized real estate primarily because it believes that there is a variety of concerted action that is trying to artificially keep commissions high through the erection of barriers to innovation. This type of quote just adds fuel to the fire.
The worst thing that could happen for all involved would be for the government to come in and over-regulate this industry. Look at what has happened with Sarbanes Oxley compliance. Who is really paying for all of the corporate “transparency”. Yet, with continued cavalier attitudes toward unethical and illegal behavior like is suggested in this article, the DOJ/NAR suit will look like a ripple in a tidal wave of government intervention.
Russ
Marlow,
First, I don’t believe that what this agent said amounts to an anti-trust violation. It does, however, epitomize a hubris similar to that which apparently took down folks like Ken Lay. You can almost picture this agent leaning over to their seller client and whispering in their ear, “Let’s just play the game and you can sell your house.”
I believe the government is attacking organized real estate primarily because it believes that there is a variety of concerted action that is trying to artificially keep commissions high through the erection of barriers to innovation. This type of quote just adds fuel to the fire.
The worst thing that could happen for all involved would be for the government to come in and over-regulate this industry. Look at what has happened with Sarbanes Oxley compliance. Who is really paying for all of the corporate “transparency”. Yet, with continued cavalier attitudes toward unethical and illegal behavior like is suggested in this article, the DOJ/NAR suit will look like a ripple in a tidal wave of government intervention.
Russ
With all due respect Russ, I think you are confused here. It is the DUTY of the Seller’s Agent to advise the seller with regard to various options available to the seller, and the negative and positive impact of the choices available.
It is absolutely the duty of the Listing Company to explain the possible ramifications of offering a 1% Buyer Agent Fee, vs. a 2% Buyer Agent Fee or a $2.00 Buyer Agent Fee. The whole point of the seller being in the mls is to gain the exposure of agents showing the house. I’m pretty sure it is an MLS RULE for the Listing Company to make these advices.
The person in the article is NOT the agent who would receive the compensation of which you speak, his job is to advise the seller properly and it would be a breach of his duty to pretend that ANY amount will have the same advantage to the seller in terms of his home showings.
With all due respect Russ, I think you are confused here. It is the DUTY of the Seller’s Agent to advise the seller with regard to various options available to the seller, and the negative and positive impact of the choices available.
It is absolutely the duty of the Listing Company to explain the possible ramifications of offering a 1% Buyer Agent Fee, vs. a 2% Buyer Agent Fee or a $2.00 Buyer Agent Fee. The whole point of the seller being in the mls is to gain the exposure of agents showing the house. I’m pretty sure it is an MLS RULE for the Listing Company to make these advices.
The person in the article is NOT the agent who would receive the compensation of which you speak, his job is to advise the seller properly and it would be a breach of his duty to pretend that ANY amount will have the same advantage to the seller in terms of his home showings.
“…..You might enjoy knowing about a recent full-commission, well-priced listing I had, which didn’t get even one offer after 60 days on the market. It’s a beautiful older home but on a very busy street. I suggested my seller raise the commission from 6 percent to 7 percent, with 4 percent to the buyer’s agent. She agreed. I held a well-publicized MLS (multiple listing service) “broker’s tour” with a deli-lunch and got 125 local agents to re-tour the house. Within the week, the house sold for nearly the full asking price. Raising the sales commission can sell a house in a slowing market –Sharon R.”-Inman News
This is the crux of the article in Russ’ link above via Inman News. I don’t know what is confusing about it, nor that Russ in confused. Russ, you confused?
Nope
Well…. I’M still confused!
I’m with Ardell on this one. Don’t we, as listing agents, owe it to the Seller to tell them the truth? My perception of “the truth” is that if the seller doesn’t pay a commission to a Buyer’s Agent, a Buyer’s Agent may not show their house, irregardless of whether or not there is a Buyer’s Agency Agreement.
If there IS a Buyer’s Agency Agreement, then any commission paid by the Seller that is over-and-above the agreed upon commission, is automatically given to the Buyer at closing.
What is wrong with this? What is wrong with that little story from Inman? We serve deli lunches all the time to lure agents in to view our listings. I’ve also given away Startbucks cards, lottery tickets and two-dollar bills. Is this a crime, collusion, an ethics violation or what? I’m just not seeing this, for some reason……
Thanks.
Well…. I’M still confused!
I’m with Ardell on this one. Don’t we, as listing agents, owe it to the Seller to tell them the truth? My perception of “the truth” is that if the seller doesn’t pay a commission to a Buyer’s Agent, a Buyer’s Agent may not show their house, irregardless of whether or not there is a Buyer’s Agency Agreement.
If there IS a Buyer’s Agency Agreement, then any commission paid by the Seller that is over-and-above the agreed upon commission, is automatically given to the Buyer at closing.
What is wrong with this? What is wrong with that little story from Inman? We serve deli lunches all the time to lure agents in to view our listings. I’ve also given away Startbucks cards, lottery tickets and two-dollar bills. Is this a crime, collusion, an ethics violation or what? I’m just not seeing this, for some reason……
Thanks.
Hmmm, the house did not sell when the SOC was ONLY 3% but throw another bone in the mix and a couple of deli sandwiches and VOILA!…suddenly a buyer. Why do agents need to be “lured” in with promises of food or a cup of joe.
There is nothing technically wrong with a listing agent doing any of these things or doing what the agent indicated in the Inman article. In fact, one might argue that they are just doing their job.
What is troubling is that the system works this way. Said another way, did any of the buyers who hired their agent understand the game? That their agents needed a “lure” to go to an open house or to show a listing? Did any of those same buyers believe that they were shown a particular house because (as the article wants us to believe) 3% was not enough for this particular house?
What message does this article send to consumers? To the FTC/DOJ?
Is it the message the industry wants to send?
Now I am confused…
Russ
The Buyer Agent Fee has TWO functions. From the seller’s side of the fence, it’s marketing the home properly. The fee IS a LURE from the SELLER’s point of view.
From the buyer’s side, it is between the buyer’s agent and the buyer to negotiate the disposition of said lure.
The seller absolutely should do everything possible to get more buyer’s, via agents, into the house. The Buyer then needs to negotiate the “bonus” amount to his side of the equation with his agent. Either in advance when they first meet, or at time of offer.
Try this on Russ. Let’s say we included a $2,500 allowance for an Attorney Cost (kind of like a “carpet allowance”. The buyer can then use it for a $2,500 attorney OR he can get a $500 attorney and keep the $2,000 or take the $2,000 off the sale price.
The amount offered by the seller is NOT the fee paid to the Buyer Agent, as long as the Buyer Agent and Buyer are communicating properly. The amount offered by the seller is the ALLOWANCE for buyer representation, the same as an allowance for an attorney fee. It doesn’t SET THE PRICE PAID to the agent any more than the $2,500 Attorney Cost allowance sets the attorney’s actual fee or the $2,000 Carpet Allowance sets the price of the carpet.
The Buyer Agent Fee has TWO functions. From the seller’s side of the fence, it’s marketing the home properly. The fee IS a LURE from the SELLER’s point of view.
From the buyer’s side, it is between the buyer’s agent and the buyer to negotiate the disposition of said lure.
The seller absolutely should do everything possible to get more buyer’s, via agents, into the house. The Buyer then needs to negotiate the “bonus” amount to his side of the equation with his agent. Either in advance when they first meet, or at time of offer.
Try this on Russ. Let’s say we included a $2,500 allowance for an Attorney Cost (kind of like a “carpet allowance”. The buyer can then use it for a $2,500 attorney OR he can get a $500 attorney and keep the $2,000 or take the $2,000 off the sale price.
The amount offered by the seller is NOT the fee paid to the Buyer Agent, as long as the Buyer Agent and Buyer are communicating properly. The amount offered by the seller is the ALLOWANCE for buyer representation, the same as an allowance for an attorney fee. It doesn’t SET THE PRICE PAID to the agent any more than the $2,500 Attorney Cost allowance sets the attorney’s actual fee or the $2,000 Carpet Allowance sets the price of the carpet.
“Why do agents need to be “lured
“Why do agents need to be “lured
Under these circumstances, I am all over the quiche
🙂
This is clearly an example of why buyer’s and sellers should pay their agents directly. The system is clearly broken. Sellers should pay either a flat or percentage fee for whatever services they require from their listing agent. Buyer’s should do the same (want to see a zillion homes over a year? pay more. Want to do all the work yourself and only need help negotiating? pay less). You could even structure it in both cases so a small deposit is necessary up-front and the bulk is payable on a successful sale.
6% commissions will be a thing of the past whether or not the NAR loses the lawsuit. Consumers are going to push heavily for a reduction in the price their paying in commissions, and unless traditional agents get on the stick and come up with new compensation models (like the ones I outlined), they might see themselves marginalized in favor of some other kind of real estate services. I’m not one that argues agents are useless, far from it (I loved mine), just that they can’t expect the existing business model to last.
I do agree that the seller’s agent was doing the appropriate thing, given the current situation. Clearly sellers need to be aware that a signficant percentage of buyer’s agents will not show their homes to buyers if their commission is reduced below 3%. I’m not commenting on the legality or “rightness” of that, and as Russ and Tim point out, I don’t think most buyer’s think that way. They think their agents are showing them the best house for the buyer. And Marlow’s point highlights why a lot of people think they’re better off doing their own housing research (whether they’re actually correct in that belief is different).
No one thinks buyer’s agents should work for free, but if buyer’s agents allow the difference in the money they’d make (or not) on a sale keep them from showing an otherwise acceptable option to buyer’s, they’re not doing their job, IMHO.
This is clearly an example of why buyer’s and sellers should pay their agents directly. The system is clearly broken. Sellers should pay either a flat or percentage fee for whatever services they require from their listing agent. Buyer’s should do the same (want to see a zillion homes over a year? pay more. Want to do all the work yourself and only need help negotiating? pay less). You could even structure it in both cases so a small deposit is necessary up-front and the bulk is payable on a successful sale.
6% commissions will be a thing of the past whether or not the NAR loses the lawsuit. Consumers are going to push heavily for a reduction in the price their paying in commissions, and unless traditional agents get on the stick and come up with new compensation models (like the ones I outlined), they might see themselves marginalized in favor of some other kind of real estate services. I’m not one that argues agents are useless, far from it (I loved mine), just that they can’t expect the existing business model to last.
I do agree that the seller’s agent was doing the appropriate thing, given the current situation. Clearly sellers need to be aware that a signficant percentage of buyer’s agents will not show their homes to buyers if their commission is reduced below 3%. I’m not commenting on the legality or “rightness” of that, and as Russ and Tim point out, I don’t think most buyer’s think that way. They think their agents are showing them the best house for the buyer. And Marlow’s point highlights why a lot of people think they’re better off doing their own housing research (whether they’re actually correct in that belief is different).
No one thinks buyer’s agents should work for free, but if buyer’s agents allow the difference in the money they’d make (or not) on a sale keep them from showing an otherwise acceptable option to buyer’s, they’re not doing their job, IMHO.
Jcriket –
Good observations.
Perhaps some agents on this board would like to chime in about your observation:
“No one thinks buyer’s agents should work for free, but if buyer’s agents allow the difference in the money they’d make (or not) on a sale keep them from showing an otherwise acceptable option to buyer’s, they’re not doing their job, IMHO.”
The questions..
Do agents really believe that other agents will not show the property if the commission is below the standard? Has anyone done this or experienced it? Or, as some may believe, do agents use this line (agent’s won’t show your house) with the seller to keep the commission at the standard 6%? This would lead some to affirm that some agents would not be working in their buyer’s best interest by not showing a property without a standard commission. Further, it would suggest that agent’s would essentially boycott properties from other brokers who make it a business model by offering less commissions.
Russ, the water seems to get murkier the further you look below the surface.
Jcriket –
Good observations.
Perhaps some agents on this board would like to chime in about your observation:
“No one thinks buyer’s agents should work for free, but if buyer’s agents allow the difference in the money they’d make (or not) on a sale keep them from showing an otherwise acceptable option to buyer’s, they’re not doing their job, IMHO.”
The questions..
Do agents really believe that other agents will not show the property if the commission is below the standard? Has anyone done this or experienced it? Or, as some may believe, do agents use this line (agent’s won’t show your house) with the seller to keep the commission at the standard 6%? This would lead some to affirm that some agents would not be working in their buyer’s best interest by not showing a property without a standard commission. Further, it would suggest that agent’s would essentially boycott properties from other brokers who make it a business model by offering less commissions.
Russ, the water seems to get murkier the further you look below the surface.
I, too, liked Jcricket’s comments. I am not sure that I have heard anyone say that a buyer’s agent should work as a charity in order to find the buyer a suitable home. I love capitalism and agents should make as much money as the market will bear.
The issue that this discussion has centered on is whether most buyer agents have a heart to heart with their prospective buyer client BEFORE they engage and discuss with them how the process works, how they get paid and how that payment structure might conflict with showing that buyer the perfect home (e.g. a lower than “std” SOC). Maybe buyers are so savvy these days that this discussion really is not necessary.
Agents, what say you?
I, too, liked Jcricket’s comments. I am not sure that I have heard anyone say that a buyer’s agent should work as a charity in order to find the buyer a suitable home. I love capitalism and agents should make as much money as the market will bear.
The issue that this discussion has centered on is whether most buyer agents have a heart to heart with their prospective buyer client BEFORE they engage and discuss with them how the process works, how they get paid and how that payment structure might conflict with showing that buyer the perfect home (e.g. a lower than “std” SOC). Maybe buyers are so savvy these days that this discussion really is not necessary.
Agents, what say you?
There is some point between X% and zero that will affect how often a home is shown. It is the listing agent’s job to ascertain the LOWEST number the seller can offer, without affecting the showings. That decision is made, or let’s say SHOULD be made, by every seller and their listing agent at time of listing.
If the seller has tons of competition in his price range and his house is apples to apples to the competition, then the listing agent may advise a higher than area norm. Area norm determined by the comps and the amount of the offering in the comps and currently active homes, not by some perceived standard percentage.
If the seller’s home is “the only game in town” or hands down better than anything else on market, then it is the listing agent’s job to recommend a lowest possible offering that will accomplish the objective, that objective being to get enough showings to sell the home. It is not the listing agent’s job to satisfy the desires of every agent in town. It is the listing agent’s job to advise the seller what the lowest cost method would be to sell the house at the highest price. The listing agent also looks at condition, location and market data before making this recommendation to the seller.
Once the listing agent and seller determine the offering amount, which can be a flat fee to a percentage, the listing agent and seller determine the price for the listing offices separate duties and the total combination of the offering and listing fee become the total percentage in the listing contract.
Since no other agent has stepped up to the plate, allow me to chime in here again….
I always have a potential buyer sign a Buyer’s Agency Agreement. In that agreement, it specifies the amount I expect to get paid, generally a percentage of the sales amount. If the buyer wants to buy a house with a lower commission than the contracted percentage, the Buyer must make up the difference. If it’s higher, then the Buyer gets the excess amount, paid to them at closing.
In the times when a house the Buyer wanted to see paid less than our agreed-upon commission, I showed them the listing sheet, and they chose to not tour the home.
It was ultimately the BUYER’S decision not to view the home, not mine.
Since no other agent has stepped up to the plate, allow me to chime in here again….
I always have a potential buyer sign a Buyer’s Agency Agreement. In that agreement, it specifies the amount I expect to get paid, generally a percentage of the sales amount. If the buyer wants to buy a house with a lower commission than the contracted percentage, the Buyer must make up the difference. If it’s higher, then the Buyer gets the excess amount, paid to them at closing.
In the times when a house the Buyer wanted to see paid less than our agreed-upon commission, I showed them the listing sheet, and they chose to not tour the home.
It was ultimately the BUYER’S decision not to view the home, not mine.
Marlow,
You are a great agent and it is no surprise that you handle business in this fashion. It would be interesting to hear the perspective from agents who do it differently and their rationale for doing business as they do.
Russ
Marlow –
You beat me to it! I’m really not jumping on your bandwagon here, but I do the same thing you do. Ultimately, the decision is the buyers’ as to whether they want to see a house.
Too few agents feel confident in their own abilities to ask potential clients to sign a Buyer-Broker Agreement, and therefore tend to just take whatever they can get that is being offered by the Seller.
Marlow –
You beat me to it! I’m really not jumping on your bandwagon here, but I do the same thing you do. Ultimately, the decision is the buyers’ as to whether they want to see a house.
Too few agents feel confident in their own abilities to ask potential clients to sign a Buyer-Broker Agreement, and therefore tend to just take whatever they can get that is being offered by the Seller.
I don’t use buyer broker agency agreements currently. I don’t restrict showing of homes based on a lower percentage and I’m not expecting the buyer to make up the difference. Though, if the co-broke was $100 then I might make them sign a BBA before showing it to them.
On the flip side, if my buyer’s agent wasn’t going to show me a property because it had a lower SOC then she wouldn’t have been my agent for very long, especially if she was going to hold me hostage to her commission. In fact, my agent at the time did show me a lower SOC property because I insisted on seeing it, though she kept highlighting the 3% SOC properties and I did sign an BBA with her.
Questions for those who use BBAs to make up the difference in commission…(1) if the buyer simply can’t afford to pay the difference are you going to keep them from buying the house which might be perfect for them, (2) are you going to actually take them to court to recover the difference?
Is the bottom line your bank account or assisting your client find the best home for them?
Maybe it’s a paradigm thing – long-time agents trying to preserve the establishment vs. newer agents (gen-X & Y) who don’t necessarily place our values on $$$.
Ben –
I look at the BBA (ERR -Exclusive Right to Represent in my market) not as a means of to “make up the difference in commission” but as a means by which to firmly and clearly establish the working agency relationship with my clients. I have done handshake agreements before but find that my time is better served by working only with those who choose to work with me.
My bottom line is a combination of the two – my ability to maintain and grow my family and business and helping my clients find the best home for them. An unbalanced position either way would not work for my business model or for who I strive to be.
Regarding the “paradigm thing” – not so much. I’m a member of “Gen X” and I place a great deal of value in my ethics, integrity and my ability to earn a living. Part of this value is ensuring that my clients know the terms of our agreement to work with each other.
–Jim
Ben –
I look at the BBA (ERR -Exclusive Right to Represent in my market) not as a means of to “make up the difference in commission” but as a means by which to firmly and clearly establish the working agency relationship with my clients. I have done handshake agreements before but find that my time is better served by working only with those who choose to work with me.
My bottom line is a combination of the two – my ability to maintain and grow my family and business and helping my clients find the best home for them. An unbalanced position either way would not work for my business model or for who I strive to be.
Regarding the “paradigm thing” – not so much. I’m a member of “Gen X” and I place a great deal of value in my ethics, integrity and my ability to earn a living. Part of this value is ensuring that my clients know the terms of our agreement to work with each other.
–Jim
I purposely never look at the comission offered, ever. I look at homes, I choose which ones I am going to show, and I show them.
I do not seek out For Sale By Owner homes, but once in a while one comes into the picture, either because I happen to pass it and notice it, or because my buyer client brings it to my attention.
I can only think of one case where the buyer client actually purchased the For Sale By Owner, and while the owner didn’t want to deal with ANY agents, he made an exception in my case 🙂 All parties agreed to a sale price, and then agreed to charge half of the agreed upon commission within that price (paid by seller) and the other half was added to the sale price (paid for and financed by the buyer). Worked out well.
I purposely never look at the comission offered, ever. I look at homes, I choose which ones I am going to show, and I show them.
I do not seek out For Sale By Owner homes, but once in a while one comes into the picture, either because I happen to pass it and notice it, or because my buyer client brings it to my attention.
I can only think of one case where the buyer client actually purchased the For Sale By Owner, and while the owner didn’t want to deal with ANY agents, he made an exception in my case 🙂 All parties agreed to a sale price, and then agreed to charge half of the agreed upon commission within that price (paid by seller) and the other half was added to the sale price (paid for and financed by the buyer). Worked out well.
Ardell-
You just brought up a very interesting & potentially controversial thing.
Would you or other agents consider increasing the price to offset paying for closing costs/commissions part of the appreciation cycle we’ve seen?
Our office closes lots of transactions with this exact scenario in play–where the seller increases the sales price to pay for buyer closing costs or fees. And we are not talking chump change– it’s several grand in price increases.
Here’s the pickle:
It’s what I see as a classic example of artificial appreciation: a potential new seller see’s the sold price of the home you sold and lists his accordingly, using your sold price as a comp. A buyer buys his place under a similar situation (jacking up the sales price to offset buyer costs) and then then another does the same and the cycle continues. This is a large undercurrent of home price escalation that is largely hidden from view. But, I see it.
Of all the 100% purchase loans we’ve closed, the majority of them were financed exactly as you describe. Home prices were jacked up. I inquired about this with an appraiser friend of mine and she basically said, ‘yeah, it goes on all the time, but what else can I do? The sold price is the sold price and that’s what we have to go off of. Buyers have no clue about the ramifications of how this drives up home prices.’
Agree or disagree?
Ardell-
You just brought up a very interesting & potentially controversial thing.
Would you or other agents consider increasing the price to offset paying for closing costs/commissions part of the appreciation cycle we’ve seen?
Our office closes lots of transactions with this exact scenario in play–where the seller increases the sales price to pay for buyer closing costs or fees. And we are not talking chump change– it’s several grand in price increases.
Here’s the pickle:
It’s what I see as a classic example of artificial appreciation: a potential new seller see’s the sold price of the home you sold and lists his accordingly, using your sold price as a comp. A buyer buys his place under a similar situation (jacking up the sales price to offset buyer costs) and then then another does the same and the cycle continues. This is a large undercurrent of home price escalation that is largely hidden from view. But, I see it.
Of all the 100% purchase loans we’ve closed, the majority of them were financed exactly as you describe. Home prices were jacked up. I inquired about this with an appraiser friend of mine and she basically said, ‘yeah, it goes on all the time, but what else can I do? The sold price is the sold price and that’s what we have to go off of. Buyers have no clue about the ramifications of how this drives up home prices.’
Agree or disagree?
Tim,
Well I don’t agree that it is “controversial” because it is pretty much a given that half or more of the sales in the lower price ranges are zero down with a closing cost credit. Lenders chime in here regarding sales of $300,000 or less.
Say the seller asks $189,000 and the sale price is $189,000 with $5,000 toward closing costs OR $194,000 with $5,000 toward closing costs. I like your term “jacked up”, the common term for it is “stacked costs”. Since an “asking price” is a nebulous figure, whether you put the costs in or stack them on top is part of negotiation and dependent on how many offers are in hand.
Basically the buyer is financing the costs, the same as many do on a refinance. No controversy involved. I DO think that sold info in the mls should show “concessions” and “credits” included in the price, to help the appraisers, and some mls systems do that. More often appraisers call us on the phone and ask if we had concessions on our sale when they are using one as a comp.
But what do you do with an agent paid closing cost? One sale price has a 6% commission and one sale price has a 4% commission with a credit toward the buyer’s closing costs. It’s just a fact of life Tim that credits and commission differences effect the “true” net sale price. I don’t see any way to fully eradicate that issue and is one of the reasons why everyone should expect a variance in value of 5% this side or that of appraised value and sale price. This is more common in sales $300,000 or less, but clearly an option for high end as well, and an option taken more and more by high end purchasers.
The lender is the one to say yay or nay on that one. The lender determines how much of the buyer’s costs can be paid within the sale price “by the seller” with the buyer’s money. As long as you escrow guys “show it on the sheet” and the lender approves “the sheet”…no controvesy there. It MUST appraise with the stacked costs and appraisers should be careful not to over appraise to accommodate the buyer’s and agents. They have to stay true to the lenders who hire them in that regard.
Was it the additional exposure of the brokers open that sold the property or the increased commission? Every week agents start working with different buyers with different needs. Did this agent that sold the property just come across the right buyer?
I will also ask my standard question, why are the listing agents working so hard on paying the selling agent? If you have a cherry listing (it is priced correctly) you know the second the sign goes in front your phone will be ringing with offers. You could offer a 1% selling agent commission and it wont have any impact on if it sells or not. The buyers will drive by it and if their agents wont show it they will call the number on the sign.
In my opinion it goes back to the age old question that if you are riding in a car with a buyer and they want to see a FSBO what do you do? The agents that know how to handle this situation are the agents that will survive.
Was it the additional exposure of the brokers open that sold the property or the increased commission? Every week agents start working with different buyers with different needs. Did this agent that sold the property just come across the right buyer?
I will also ask my standard question, why are the listing agents working so hard on paying the selling agent? If you have a cherry listing (it is priced correctly) you know the second the sign goes in front your phone will be ringing with offers. You could offer a 1% selling agent commission and it wont have any impact on if it sells or not. The buyers will drive by it and if their agents wont show it they will call the number on the sign.
In my opinion it goes back to the age old question that if you are riding in a car with a buyer and they want to see a FSBO what do you do? The agents that know how to handle this situation are the agents that will survive.
I just got a cute one. “$5.00 to EACH AGENT that attends = 1 1/2 gallons of gas for attending”. LOL…gas money.
Unfotunately Allen, the aren’t all “cherry listings”. Sometimes getting people inside is the issue. Busy Road, not the most preferred floor plan, like a split. If you get lots of people inside and no one wants it, then you have to go with price reduction. But before reducing it $10,000, maybe a $2,000 bonus will get enough people in to find someone who likes it. Not sure about $5.00 for gas though 🙂
I love this topic! Why? Everyone enters into the conversation with various biases. These range from longevity in the industry (where 6% commission has been the standard for years), seeing the organization of the fee structure through the lens of the Sherman Act (the aggregated market view), presuming the inevitibility that technology will force tremendous change (having seen it happen in other markets), and just wanting to make sure that the individual client relationship and transaction is fair and ethical (ignoring the aggregate and just focusing on doing the right thing). There are other biases as well, with enough intersection amongst all viewpoints to create, as I said, a fascinating conversation.
The lens through which I view this is as someone new to the real estate sales industry. My background is in client service (tourism, ad agency), and technology (internet ad agency), with a year of real estate investing under my belt. In my short time doing sales (3 closes, 2 months), I’ve talked with both good agents (polite, courteous, professional, knowledgeable), bad agents (no clue how to even submit an offer), and a combination of both (someone with lots of listings and closes, but cursed me out before slamming the phone down).
Where am I going with this? My opinion is that the sacred cow of 3% commission paid to each side will be slaughtered over the next ten years. What makes this discussion so fascinating is that each bias I listed has a role in this happening! Technology will put immense pressure on the listing side; the DOJ will crack the MLS egg (ironically due to the practical utility of technology); and experience will count, but only as much as the market will bear (which will be less than 3%).
I recently read ‘The Millionnaire Real Estate Agent” written by Gary Keller, and in it, one of his foundational concepts towards reaching a million in net income is the scalability of listings. True, an agent can manage more listings than buyers, but Keller assumes a 3% listing agnet commission with any number of listings. With my Internet business background, I’ve seen the disintermediating power of the Internet extract value from any business model of scale in every case, given enough time. This is no different! Listing commission will continue dropping towards free (I’m sure statistics will bear that out now), while the commission offered to agents bring buyers will drop, but only slightly. Why? SALES. In any sales game, the money makers are the ones that sell product. More specifically, they control those who consume product.
I don’t understand why Russ is so surprised that a higher commission would move a property faster, or that a smaller one would have the opposite effect, or why this is unethical – it’s free enterprise at work! If the manufacturer of widget X, one who has competition from widget Y, is suffering losses due to manufacturing problems, accounting issues (wink to Enron), or quality deterioriation, do you think that cutting the revenues/commissions to channel partners would result in drop in demand of the product? Absolutely. Why should it? The product hasn’t changed from before the cut to after the channel partner commission cut (all other factors being equal). The job of the sales channel is to create/increase demand for the product through marketing efforts. Russ’ argument – to me – only makes sense if the argument can be made that any specific parcel of property is unique and without competition. I think this is incorrect given the dynamics of the SFR market – it’s based on substitution, which implies that there is no unique piece of property from a market point of view, because there are always substitutes!
I’m all over the place here, forgive me. However, in summary, it’s the agents who control the buyers who have the control – and this is a seller’s market! Think of when the market turns! It’s the buyers’ agents – in aggregate – that ultimately decide (given the lack of transparency regarding commissions to the consumers) from which selection of products that the buyer consumes.
In a world where a listed property is distributed – via technology – as widely as it is today (and even more so in the future), where is the value that a 3% listing commission provides for a seller? Good staging? TV shows and books are everywhere giving this advice. Good photos? $200 will buy you a good professional set of photos to list. Unique marketing? Is there really any incremental bump of any significance that a listing agent’s marketing will acheive when 80% of sales are driven solely by the presence of a property on the MLS? No, the best value for a seller will lie in the payment it makes to its best sales channel – the agents and other organizations that control and influence the buyers. Technology will play a larger role in this as well, but I feel that this ‘sacred cow’ will last longer than the listing agent’s 3% commission.
That’s why I’m happy to list properties for 5% (with 3% going to the buyer’s agent). I hook ’em with the discount, then reel in the referrals with my customer service skills and the relationship I build. On the buyer’s side, I hook ’em with service and a relationship, and find them the best house for them. If I get 2.5% instead of 3%, fine! I’ve created happy clients, and happy clients beget more business and lots of referrals.
So, there you go. I’m sure my biases come bleeding through. I became an agent originally to simply list my own investment properties. However, I enjoy the sales aspect, and I feel that I can see the that the emperor’s clothes are transparent, adapt to the turbulent changes afoot in the industry, and chart a course in the direction of whence these changes will take the industry. I’ve always said, I’d be a trillionnaire if I could see only 10 minutes into the future. I can’t do that, but I feel that I can see the hazy aura of the future, and by building my business against these (in my opinion) inevitable changes, can acheive (again, in my opinion) success.
I love this topic! Why? Everyone enters into the conversation with various biases. These range from longevity in the industry (where 6% commission has been the standard for years), seeing the organization of the fee structure through the lens of the Sherman Act (the aggregated market view), presuming the inevitibility that technology will force tremendous change (having seen it happen in other markets), and just wanting to make sure that the individual client relationship and transaction is fair and ethical (ignoring the aggregate and just focusing on doing the right thing). There are other biases as well, with enough intersection amongst all viewpoints to create, as I said, a fascinating conversation.
The lens through which I view this is as someone new to the real estate sales industry. My background is in client service (tourism, ad agency), and technology (internet ad agency), with a year of real estate investing under my belt. In my short time doing sales (3 closes, 2 months), I’ve talked with both good agents (polite, courteous, professional, knowledgeable), bad agents (no clue how to even submit an offer), and a combination of both (someone with lots of listings and closes, but cursed me out before slamming the phone down).
Where am I going with this? My opinion is that the sacred cow of 3% commission paid to each side will be slaughtered over the next ten years. What makes this discussion so fascinating is that each bias I listed has a role in this happening! Technology will put immense pressure on the listing side; the DOJ will crack the MLS egg (ironically due to the practical utility of technology); and experience will count, but only as much as the market will bear (which will be less than 3%).
I recently read ‘The Millionnaire Real Estate Agent” written by Gary Keller, and in it, one of his foundational concepts towards reaching a million in net income is the scalability of listings. True, an agent can manage more listings than buyers, but Keller assumes a 3% listing agnet commission with any number of listings. With my Internet business background, I’ve seen the disintermediating power of the Internet extract value from any business model of scale in every case, given enough time. This is no different! Listing commission will continue dropping towards free (I’m sure statistics will bear that out now), while the commission offered to agents bring buyers will drop, but only slightly. Why? SALES. In any sales game, the money makers are the ones that sell product. More specifically, they control those who consume product.
I don’t understand why Russ is so surprised that a higher commission would move a property faster, or that a smaller one would have the opposite effect, or why this is unethical – it’s free enterprise at work! If the manufacturer of widget X, one who has competition from widget Y, is suffering losses due to manufacturing problems, accounting issues (wink to Enron), or quality deterioriation, do you think that cutting the revenues/commissions to channel partners would result in drop in demand of the product? Absolutely. Why should it? The product hasn’t changed from before the cut to after the channel partner commission cut (all other factors being equal). The job of the sales channel is to create/increase demand for the product through marketing efforts. Russ’ argument – to me – only makes sense if the argument can be made that any specific parcel of property is unique and without competition. I think this is incorrect given the dynamics of the SFR market – it’s based on substitution, which implies that there is no unique piece of property from a market point of view, because there are always substitutes!
I’m all over the place here, forgive me. However, in summary, it’s the agents who control the buyers who have the control – and this is a seller’s market! Think of when the market turns! It’s the buyers’ agents – in aggregate – that ultimately decide (given the lack of transparency regarding commissions to the consumers) from which selection of products that the buyer consumes.
In a world where a listed property is distributed – via technology – as widely as it is today (and even more so in the future), where is the value that a 3% listing commission provides for a seller? Good staging? TV shows and books are everywhere giving this advice. Good photos? $200 will buy you a good professional set of photos to list. Unique marketing? Is there really any incremental bump of any significance that a listing agent’s marketing will acheive when 80% of sales are driven solely by the presence of a property on the MLS? No, the best value for a seller will lie in the payment it makes to its best sales channel – the agents and other organizations that control and influence the buyers. Technology will play a larger role in this as well, but I feel that this ‘sacred cow’ will last longer than the listing agent’s 3% commission.
That’s why I’m happy to list properties for 5% (with 3% going to the buyer’s agent). I hook ’em with the discount, then reel in the referrals with my customer service skills and the relationship I build. On the buyer’s side, I hook ’em with service and a relationship, and find them the best house for them. If I get 2.5% instead of 3%, fine! I’ve created happy clients, and happy clients beget more business and lots of referrals.
So, there you go. I’m sure my biases come bleeding through. I became an agent originally to simply list my own investment properties. However, I enjoy the sales aspect, and I feel that I can see the that the emperor’s clothes are transparent, adapt to the turbulent changes afoot in the industry, and chart a course in the direction of whence these changes will take the industry. I’ve always said, I’d be a trillionnaire if I could see only 10 minutes into the future. I can’t do that, but I feel that I can see the hazy aura of the future, and by building my business against these (in my opinion) inevitable changes, can acheive (again, in my opinion) success.
WOW Russ! You sure got a lot of bang out of a one sentence post and a quote! I even subscribed to Inman just to read the full article 🙂
Yea, go figure…
Great post by Seattleeric. You are obviously a smart fellow with a bright future in the business. One thing to keep in mind is that channel partners have no agency obligation to their upstream partners. Remove agency duties and your analogy works great. Unfortunately, not the world we live in.
-Russ
Yea, go figure…
Great post by Seattleeric. You are obviously a smart fellow with a bright future in the business. One thing to keep in mind is that channel partners have no agency obligation to their upstream partners. Remove agency duties and your analogy works great. Unfortunately, not the world we live in.
-Russ
So now let me get this straight. I am totally confussed. Are you guys talking about where and how the commissions come from? So, let me see if I understand this. If lets say Ardell has a buyer – (and I am assuming she has a Buyers Broker Agreement signed) And SeatlleEric has a listing, with the sellers paying 6%. Is that 6% being split between BOTH the listing and selling agent – however the listing agent sees fit?
Let me go back one step – On the Buyer Broker agreement – is there a clause about where and HOW the buyers agent gets paid? What if – Ardell has a listing and she is doing an open house and she produces a buyer – you are the listing and the selling agent – correct? You at that point are representing the seller – right? You can’t represent the buyer so you make them aware of that – am I getting this right? Now the commission was 6% – do you get paid the full 6% for being the listing and selling agent?
I am in NYC and this is so out of the norm for me with the buyers agents and listing agents – we are one in the same. We clearly only represent the sellers – even if it is on MLS – All agents here represent the sellers and get paid purely from the sales price from the sellers – All commisions are set up front and both sides get paid from there – From first contact with a buyer we have an agency diclosure form to be filled out by the buyers – making them aware of who we are working for. Even at our open houses – these forms HAVE to be filled out and signed.
So now let me get this straight. I am totally confussed. Are you guys talking about where and how the commissions come from? So, let me see if I understand this. If lets say Ardell has a buyer – (and I am assuming she has a Buyers Broker Agreement signed) And SeatlleEric has a listing, with the sellers paying 6%. Is that 6% being split between BOTH the listing and selling agent – however the listing agent sees fit?
Let me go back one step – On the Buyer Broker agreement – is there a clause about where and HOW the buyers agent gets paid? What if – Ardell has a listing and she is doing an open house and she produces a buyer – you are the listing and the selling agent – correct? You at that point are representing the seller – right? You can’t represent the buyer so you make them aware of that – am I getting this right? Now the commission was 6% – do you get paid the full 6% for being the listing and selling agent?
I am in NYC and this is so out of the norm for me with the buyers agents and listing agents – we are one in the same. We clearly only represent the sellers – even if it is on MLS – All agents here represent the sellers and get paid purely from the sales price from the sellers – All commisions are set up front and both sides get paid from there – From first contact with a buyer we have an agency diclosure form to be filled out by the buyers – making them aware of who we are working for. Even at our open houses – these forms HAVE to be filled out and signed.
Christine,
Are you saying that in NY a Buyer MUST sign a Buyer Agency Agreement to be represented? That if they don’t, then the agent they are spending weeks with is “secretly” representing the seller?
I am totally surprised by that, since the first buyers I “represented” in a transaction were ones coming into Bucks County PA from NY over ten years ago! I’m very surprised a New Yorker would stand for that.
We don’t “produce” buyers here LOL…we produce…what DO we produce in Seattle? Computer Techs, I think…
Christine,
Are you saying that in NY a Buyer MUST sign a Buyer Agency Agreement to be represented? That if they don’t, then the agent they are spending weeks with is “secretly” representing the seller?
I am totally surprised by that, since the first buyers I “represented” in a transaction were ones coming into Bucks County PA from NY over ten years ago! I’m very surprised a New Yorker would stand for that.
We don’t “produce” buyers here LOL…we produce…what DO we produce in Seattle? Computer Techs, I think…
Not secretly – Our buyers have to sign a disclosure form making them aware that we are working for the sellers. Without this disclosure form on file from the FIRST contact with a buyer – department of State will fine you. ( I hear its like 11,000.00 – but I am not 100% positive).
Russ – Good point regarding the agency element as the difference. Regulated, complete transparency and disclosure seem to be the only answer. God knows you can’t trust the individual agent to provide the required transparency (meaning, the majority of agents would – if required – but even if 5% are bad apples and don’t complete voluntarily, the apple cart falls over).
I was also thinking…if the downward pressure on commissions that I believe will occur accelerates, it would follow that only organizations of scale can effectively profit from such an environment. Will a large percentage of agents be salaried corporate employees, with benefits and stability, but with little of the unlimited upside that an independent contractor agent currently has? Will any individual be able to make a living when listings cost a flat $1000 for a seller?
Imperfect technologies such as Zillow are only the beginning. Agents needn’t fear Zillow in its current state as an agent killer; but as tools improve, and complimentary technologies tap into ‘expertise’ that previously lay in the sole domain of the agent, seller successes using these tools increase, and the tipping point is reached requiring a change in the current agency model (driven by the resulting depressed commissions).
THEN, after this all is accelerating, the final blow comes with the success of the DOJ lawsuit against the NAR.
Am I the only one who sees this as inevitable?
Russ – Good point regarding the agency element as the difference. Regulated, complete transparency and disclosure seem to be the only answer. God knows you can’t trust the individual agent to provide the required transparency (meaning, the majority of agents would – if required – but even if 5% are bad apples and don’t complete voluntarily, the apple cart falls over).
I was also thinking…if the downward pressure on commissions that I believe will occur accelerates, it would follow that only organizations of scale can effectively profit from such an environment. Will a large percentage of agents be salaried corporate employees, with benefits and stability, but with little of the unlimited upside that an independent contractor agent currently has? Will any individual be able to make a living when listings cost a flat $1000 for a seller?
Imperfect technologies such as Zillow are only the beginning. Agents needn’t fear Zillow in its current state as an agent killer; but as tools improve, and complimentary technologies tap into ‘expertise’ that previously lay in the sole domain of the agent, seller successes using these tools increase, and the tipping point is reached requiring a change in the current agency model (driven by the resulting depressed commissions).
THEN, after this all is accelerating, the final blow comes with the success of the DOJ lawsuit against the NAR.
Am I the only one who sees this as inevitable?
Some of my agent friends around the Country are still getting calls from the DOJ phishing for “evidence” to make their case. On a State to State basis, most of the suits are falling in favor of NAR. I think the DOJ could win, but all that would do is affect the “opt out” provision, as far as I can tell.
“opt out” alone, IDX/VOW policies alone, will not affect anything really, will it? Is there a bigger item in the case that would truly affect the industry? Are they going to stop requiring NAR membership to join the mls and get a SUPRA keypad in most of the Country? If not, I don’t see much change afoot hanging on the results of this one case.
Some of my agent friends around the Country are still getting calls from the DOJ phishing for “evidence” to make their case. On a State to State basis, most of the suits are falling in favor of NAR. I think the DOJ could win, but all that would do is affect the “opt out” provision, as far as I can tell.
“opt out” alone, IDX/VOW policies alone, will not affect anything really, will it? Is there a bigger item in the case that would truly affect the industry? Are they going to stop requiring NAR membership to join the mls and get a SUPRA keypad in most of the Country? If not, I don’t see much change afoot hanging on the results of this one case.
If commissions are reduced, competence will suffer.
It’s like teacher salaries… at a certain point, the decent ones will leave the business leaving only the young, inexperienced or the incompetent. The turnover will be huge and the industry will have trouble retaining anyone with a modicum of experience and common sense and the whole system will dissolve in disarray. We could go to a system like in Australia where there are no Buyers Agent and the buyer has to drive around and find the house themselves. There’s only one chance to view the home, perhaps in an hour or two time-slot on a Sunday afternoon. That’s it. Take it or leave it. There’ll be no hand-holding, no midnight phone calls, no guidance, no negotiating.
Believe me, no one would work my hours without adequate compensation.
So many proponents of the new Real Estate Web 2.0 who talk about “disintermediation the real estate agent” aren’t thinking the home buying and selling process through thoroughly. Sure, we don’t spend so much time driving around now because we can “preview” homes online. However, we all have much higher Errors & Omissions and liability insurance costs, tech overhead, website maintenance costs, and support staff to make it all go smoothly.
If the rewards, i.e. commissions, go down far enough, the decent real estate professionals will leave the business, leaving only incompetent peddlers and hustlers left to attend to business.
I’m not sure this is what anyone wants…. is it?
If commissions are reduced, competence will suffer.
It’s like teacher salaries… at a certain point, the decent ones will leave the business leaving only the young, inexperienced or the incompetent. The turnover will be huge and the industry will have trouble retaining anyone with a modicum of experience and common sense and the whole system will dissolve in disarray. We could go to a system like in Australia where there are no Buyers Agent and the buyer has to drive around and find the house themselves. There’s only one chance to view the home, perhaps in an hour or two time-slot on a Sunday afternoon. That’s it. Take it or leave it. There’ll be no hand-holding, no midnight phone calls, no guidance, no negotiating.
Believe me, no one would work my hours without adequate compensation.
So many proponents of the new Real Estate Web 2.0 who talk about “disintermediation the real estate agent” aren’t thinking the home buying and selling process through thoroughly. Sure, we don’t spend so much time driving around now because we can “preview” homes online. However, we all have much higher Errors & Omissions and liability insurance costs, tech overhead, website maintenance costs, and support staff to make it all go smoothly.
If the rewards, i.e. commissions, go down far enough, the decent real estate professionals will leave the business, leaving only incompetent peddlers and hustlers left to attend to business.
I’m not sure this is what anyone wants…. is it?
Can I get an Amen for Marlow!
Marlow,
This is exactly the concerns I have about the direction the industry is going. I feel strongly that there is 6% available in the real estate transaction for commissions. When I read posts like the one from seattleeric in which he is new in the business and willing to discount the listing side commission to get a deal I find it frustrating. I then go to his blog and read about how upset he is because he just lost a deal and he is just trying to make enough to pay his bills. I wonder what seattleeric will do when the market slows down and those 2% transactions are farther apart? Ill bet that other 1% would have helped carry him through the rough time.
I remember sitting at a table with one of the first/successful online discount brokers. I asked him if you were to do it all over again what would you do different. His #1 answer was he wouldn’t have discounted the listing side commission. It wasn’t because of the discount why people were listing with him it was the exposure he offered and the professional full service he provided.
Can I get an Amen for Marlow!
Marlow,
This is exactly the concerns I have about the direction the industry is going. I feel strongly that there is 6% available in the real estate transaction for commissions. When I read posts like the one from seattleeric in which he is new in the business and willing to discount the listing side commission to get a deal I find it frustrating. I then go to his blog and read about how upset he is because he just lost a deal and he is just trying to make enough to pay his bills. I wonder what seattleeric will do when the market slows down and those 2% transactions are farther apart? Ill bet that other 1% would have helped carry him through the rough time.
I remember sitting at a table with one of the first/successful online discount brokers. I asked him if you were to do it all over again what would you do different. His #1 answer was he wouldn’t have discounted the listing side commission. It wasn’t because of the discount why people were listing with him it was the exposure he offered and the professional full service he provided.
Marlow – I don’t buy your argument that “if commissions are reduced, competence will suffer.” We all regularly read/hear the horror stories of the agents who, working under the current commission model, do a terrible job. I’d say, if anything, it’s equally likely that a reduction in commissions will merely reduce/get rid of the bad agents who think RE is “just the big bucks”. The best agents will survive and thrive.
I don’t disagree that real estate agents work long hours and deserve adequate compensation. However, commissions have remained at 3%/3% even though home prices have shot up 100s of percent in the past 10 years. I’m guessing most agents aren’t working 200% harder now than 10 years ago. Moreover, why should their pay be directly tied to the cost of the house? I’m sure there are many cases where buyers on the lower end require far more work than upper-end buyers. Shouldn’t agents be compensated based on the amount of work they’ve actually done? Why ont use a fixed fee-type structure? Or some combination of fixed-fee and commission?
IMHO, there are several ways to adequately compensate listing & buying agents while removing the “perverse incentives” that often misalign the consumer and agent’s interests. I for one think technology will continue to play a significant role in the transformation of buying and selling homes. For one, it’s likely that all the financial players in RE deals will eventually move their documentation to the Internet (electronic signatures).
I don’t think these changes will make agents go away, far from it. Even Redfin uses agents to negotiate/close the deal. I plan on using an agent if I sell/buy in the next 5 years, as I like the full-service and relying on their expertise – plus I would never buy a house site unseen and I want someone there in case things explode during the negotation. I just think that your argument that agents will only survive if the current commission rate stays the same is just not reality.
Marlow – I don’t buy your argument that “if commissions are reduced, competence will suffer.” We all regularly read/hear the horror stories of the agents who, working under the current commission model, do a terrible job. I’d say, if anything, it’s equally likely that a reduction in commissions will merely reduce/get rid of the bad agents who think RE is “just the big bucks”. The best agents will survive and thrive.
I don’t disagree that real estate agents work long hours and deserve adequate compensation. However, commissions have remained at 3%/3% even though home prices have shot up 100s of percent in the past 10 years. I’m guessing most agents aren’t working 200% harder now than 10 years ago. Moreover, why should their pay be directly tied to the cost of the house? I’m sure there are many cases where buyers on the lower end require far more work than upper-end buyers. Shouldn’t agents be compensated based on the amount of work they’ve actually done? Why ont use a fixed fee-type structure? Or some combination of fixed-fee and commission?
IMHO, there are several ways to adequately compensate listing & buying agents while removing the “perverse incentives” that often misalign the consumer and agent’s interests. I for one think technology will continue to play a significant role in the transformation of buying and selling homes. For one, it’s likely that all the financial players in RE deals will eventually move their documentation to the Internet (electronic signatures).
I don’t think these changes will make agents go away, far from it. Even Redfin uses agents to negotiate/close the deal. I plan on using an agent if I sell/buy in the next 5 years, as I like the full-service and relying on their expertise – plus I would never buy a house site unseen and I want someone there in case things explode during the negotation. I just think that your argument that agents will only survive if the current commission rate stays the same is just not reality.
I’m with Cricket on this one. % is baloney. Fifteen Grand is Fifteen Grand regardless of home price.
If you would sell a $500,000 house for a $15,000 fee, why wouldn’t you sell a $600,000 house for $15,000? What’s the difference!
How am I going to be “less efficient” on the second sale?? Am I going to be “less efficient” on the $200,000 condo I am staging today and selling soon than on the $900,000 home I sold last week?
Once you base “efficiency” on amount paid, you are saying you work less hard for the lower priced client! Can’t be so…
I’m with Cricket on this one. % is baloney. Fifteen Grand is Fifteen Grand regardless of home price.
If you would sell a $500,000 house for a $15,000 fee, why wouldn’t you sell a $600,000 house for $15,000? What’s the difference!
How am I going to be “less efficient” on the second sale?? Am I going to be “less efficient” on the $200,000 condo I am staging today and selling soon than on the $900,000 home I sold last week?
Once you base “efficiency” on amount paid, you are saying you work less hard for the lower priced client! Can’t be so…
One of the most neglected and least understood components of the real estate transaction is the enormous liability that agents (and their Brokers) accept.
In our litigious society, few choose to accept any responsibility for their own actions or decisions. Lawsuits cast the widest net and more often than not, a settlement is reached rather than actually going to court. No one wins in court.
So aside from my little rant, this may be an argument for % based commissions, as I would imagine the lawsuit on that $900k transaction would be greater than that brought because of the $200k condo.
While the benefits are greater on the $900k home than that of the $200k one, so are the risks.
One of the most neglected and least understood components of the real estate transaction is the enormous liability that agents (and their Brokers) accept.
In our litigious society, few choose to accept any responsibility for their own actions or decisions. Lawsuits cast the widest net and more often than not, a settlement is reached rather than actually going to court. No one wins in court.
So aside from my little rant, this may be an argument for % based commissions, as I would imagine the lawsuit on that $900k transaction would be greater than that brought because of the $200k condo.
While the benefits are greater on the $900k home than that of the $200k one, so are the risks.
Ardell and jcricket,
I don’t think agents are working 200% harder then they did 10 years ago. 10 years ago the home I purchased was $135,000 its currently worth $400,000. That’s a major cost of living expense. 10 years ago the cost of gas wasn’t $3.15 a gallon. 10 years ago an agents technology fee was almost 0. 10 years ago most commissions (in my area) where at 7%. 10 years ago there where 1/3 to 1/2 the number of agents in the market place. To say an agent income should not increase over time is not a fair statement IMHO.
Ardell there are more costs and more risks as the value of the property increases. When the risk increase so should the compensation. I also get the sense that you feel everyone should be happy with the same compensation program you are happy with. I don’t think this is true or fair I think many agents choose to work smarter then harder while making as much money as they can. Agents don’t get pay checks every 2 weeks they lay it out on the line every day. For this risk they should be able to negotiate any and as much compensation as they can.
Ardell and jcricket,
I don’t think agents are working 200% harder then they did 10 years ago. 10 years ago the home I purchased was $135,000 its currently worth $400,000. That’s a major cost of living expense. 10 years ago the cost of gas wasn’t $3.15 a gallon. 10 years ago an agents technology fee was almost 0. 10 years ago most commissions (in my area) where at 7%. 10 years ago there where 1/3 to 1/2 the number of agents in the market place. To say an agent income should not increase over time is not a fair statement IMHO.
Ardell there are more costs and more risks as the value of the property increases. When the risk increase so should the compensation. I also get the sense that you feel everyone should be happy with the same compensation program you are happy with. I don’t think this is true or fair I think many agents choose to work smarter then harder while making as much money as they can. Agents don’t get pay checks every 2 weeks they lay it out on the line every day. For this risk they should be able to negotiate any and as much compensation as they can.
Agreed. It is baloney. Does our office do any more work on a $1.5 mil deal than a $300K. Nope. Both can be just as complicated, particularly in dealing with many more bankruptcy’s, IRS judegements, etc…
Perspective
That’s why we charge what we charge. I’d love to receive a fraction of the commission checks I cut with my signature on it. For perspective, we only recieve .00165%/side of the sales price in closing that $300K deal vs. those that are arguing to keep Realtor commissions where they are. And to think that’s what our office receives, after meeting with a client last evening at 7pm, only to have said customer indicate that the loan docs were wrong (this happens a lot folks), and all this after receiving the very same loan docs at 4 :40pm in the afternoon with the loan officer pleading for us to drop all our other transactions to work on theirs. Sound familiar? Why so late to receive them? Why the rush? Why the push push push. I’ll let your imaginations ponder that one.
Liability/Risk argument
Speaking of the liability/risk payoff argument in terms of compensation: It’s $8000.00 yr. min premium/ for our insurance annually which is rated on risk factors, claim history, how many LPO’s you employ etc. Our risk is considerably higher than that of an agent. Really not even in the same league. So to take Allen’s idea that risk-payoff should be aligned, then I’m massively underpaid.
I always get a grin when agents & loan officers ask me what it takes to open and operate an escrow office. Internship anyone?
Agreed. It is baloney. Does our office do any more work on a $1.5 mil deal than a $300K. Nope. Both can be just as complicated, particularly in dealing with many more bankruptcy’s, IRS judegements, etc…
Perspective
That’s why we charge what we charge. I’d love to receive a fraction of the commission checks I cut with my signature on it. For perspective, we only recieve .00165%/side of the sales price in closing that $300K deal vs. those that are arguing to keep Realtor commissions where they are. And to think that’s what our office receives, after meeting with a client last evening at 7pm, only to have said customer indicate that the loan docs were wrong (this happens a lot folks), and all this after receiving the very same loan docs at 4 :40pm in the afternoon with the loan officer pleading for us to drop all our other transactions to work on theirs. Sound familiar? Why so late to receive them? Why the rush? Why the push push push. I’ll let your imaginations ponder that one.
Liability/Risk argument
Speaking of the liability/risk payoff argument in terms of compensation: It’s $8000.00 yr. min premium/ for our insurance annually which is rated on risk factors, claim history, how many LPO’s you employ etc. Our risk is considerably higher than that of an agent. Really not even in the same league. So to take Allen’s idea that risk-payoff should be aligned, then I’m massively underpaid.
I always get a grin when agents & loan officers ask me what it takes to open and operate an escrow office. Internship anyone?
Allen – No one is arguing you shouldn’t make more after 10 years. But, given the fact that home price appreciation has far exceeded inflation and any wage increases for the average public for the last 10 years, agents have clearly gotten far bigger “raises” every year than the average person. I understand this only applies to a hypothetical situation where you’re doing the same # of deals as before.
I just fail to see where it’s written in stone that an agent’s compensation has to rise exactly in synch with the prices of homes, especially when there is not a one-to-one match with the work/liability/risk you’re doing (as Ardell and Tim have pointed out). I know that I don’t automatically get a raise when my housing or gas expenses go up. In fact, my income largely hasn’t been keeping up with those expenses, so I look for areas I can cut.
I also understand that there is also more competition amongst agents – which has the possibility shrink agent salaries (decreased number of deals each agent makes/year). However, why are consumers responsible for making up the difference in each agent’s salary because of that competition? That doesn’t really sway me. In almost every other industry, pricing is subject to market forces, and increased competition usually drives prices down for consumers, over time.
Getting into the effects increased competition/low prices have on customer service is another story…
Allen – No one is arguing you shouldn’t make more after 10 years. But, given the fact that home price appreciation has far exceeded inflation and any wage increases for the average public for the last 10 years, agents have clearly gotten far bigger “raises” every year than the average person. I understand this only applies to a hypothetical situation where you’re doing the same # of deals as before.
I just fail to see where it’s written in stone that an agent’s compensation has to rise exactly in synch with the prices of homes, especially when there is not a one-to-one match with the work/liability/risk you’re doing (as Ardell and Tim have pointed out). I know that I don’t automatically get a raise when my housing or gas expenses go up. In fact, my income largely hasn’t been keeping up with those expenses, so I look for areas I can cut.
I also understand that there is also more competition amongst agents – which has the possibility shrink agent salaries (decreased number of deals each agent makes/year). However, why are consumers responsible for making up the difference in each agent’s salary because of that competition? That doesn’t really sway me. In almost every other industry, pricing is subject to market forces, and increased competition usually drives prices down for consumers, over time.
Getting into the effects increased competition/low prices have on customer service is another story…
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Jcricket,
The observation im making is that it is not the consumers pounding their fists on the desk saying they want to pay less. It’s the agents telling the consumer they are paying too much. This is what I find very interesting. The consumers have tons of choices they can pay as little as a 1000 dollars and get their home tossed into the mls. But if they agree to pay a 3% fee to the selling agent and a 3% fee to the listing agent the only people with issue are other agents. Don’t you find this funny? The industry in my opinion is being destroyed from the inside out. With agents trying to be such power advocates that they are limiting their own income potential while attacking their own brothers and sisters.
I just ran some quick stats on a very affluent neighborhood in Seattle market area 710 the Sandpoint Area. Everyone would have to agree that this is a largely high educated high income area. 74.72% of the properties listed year to date are by Windermere, John L Scott, Remax and Coldwell Banker . I would not classify these companies as discount brokers. I would not classify these sellers as uneducated in real estate either. So if these sellers dont have an issue why is it an issue?
Jcricket,
The observation im making is that it is not the consumers pounding their fists on the desk saying they want to pay less. It’s the agents telling the consumer they are paying too much. This is what I find very interesting. The consumers have tons of choices they can pay as little as a 1000 dollars and get their home tossed into the mls. But if they agree to pay a 3% fee to the selling agent and a 3% fee to the listing agent the only people with issue are other agents. Don’t you find this funny? The industry in my opinion is being destroyed from the inside out. With agents trying to be such power advocates that they are limiting their own income potential while attacking their own brothers and sisters.
I just ran some quick stats on a very affluent neighborhood in Seattle market area 710 the Sandpoint Area. Everyone would have to agree that this is a largely high educated high income area. 74.72% of the properties listed year to date are by Windermere, John L Scott, Remax and Coldwell Banker . I would not classify these companies as discount brokers. I would not classify these sellers as uneducated in real estate either. So if these sellers dont have an issue why is it an issue?
Allen – I’m not sure I agree with your description of the situation. The original post pointed out that sellers are being told not to list at any less than 3% for buyer’s agent fees because they fear agent’s won’t show their house. While that might be good advice, it’s basically collusion, and certainly holds seller’s “hostage” to a certain price (if the original post was true).
To me this just points out the inherent problems with the model where the seller pay all the fees. If the seller only paid the listing agent, and the buyer paid the buyer’s agent, each agent would be appropriately incented to “do the right thing” by their respective customers, and this issue would go away. Listing agents would still want to work hard to incent buyer’s agents to see the house, but in more appropriate ways (i.e. marketing the house effectively, not kickbacks).
I’m also not sure why agents shouldn’t compete on price, in addition to service? If another company feels they can do the same “job” at a better price, why shouldn’t they be allowed to? Is Real Estate so special that the 3% commission rate is set in stone and any company that breaks it gets blacklisted? That’s the root of the NAR/DOJ lawsuit.
Jcricket
Please read my post #26 you and I are saying exactly the same thing about the selling side commission.
As far as compete on price I have no problem with that. If an agent feels he or she is overpaid they have all the right in the world to take less money or offer their service for less (I should say with their brokers permission). But just because they feel they are over paid does not mean that everyone else feels the same way or conducts business under that principle. 3% is not set in stone but if the seller agrees to pay that amount for the service you provide and all parties are happy I believe that is an arms length transaction. As I said in my previous post there are many other options available to the sellers who want to pay discounted fees.
Jcricket
Please read my post #26 you and I are saying exactly the same thing about the selling side commission.
As far as compete on price I have no problem with that. If an agent feels he or she is overpaid they have all the right in the world to take less money or offer their service for less (I should say with their brokers permission). But just because they feel they are over paid does not mean that everyone else feels the same way or conducts business under that principle. 3% is not set in stone but if the seller agrees to pay that amount for the service you provide and all parties are happy I believe that is an arms length transaction. As I said in my previous post there are many other options available to the sellers who want to pay discounted fees.
Allen-
You’re gettin’ picked on, but only because you bring up excellent points.
Call me naive, but I had no idea how many people really think the fees being charged are overboard. Until I started an escrow company that is.
So I disagree with the idea that it’s not consumers, but agents that are the ones talking about driving fees down. It is consumers and I meet them more frequently than you’d imagine.
Among other interesting things, a lot of people at the closing table discuss commissions when going over closing costs. It ranges from “uh huh, not going to do this again” to “I’ll never pay that kind of commission again for what I received,” to “I’ll never list my home again,” to the proverbial shake of the head from side to side without saying a thing, which says it all.
Put another way, I’ve never ever had a consumer come out and tell me, “gosh, I can’t believe the value I got for paying $30,000 in commissions.” Just hasn’t happened nor do I expect it to.
So consumers are thinking about this issue and are the driver behind asking the industry for an alternative. It’ just a matter of who will fill this need the best.
Jim Duncan: I used to think that way, liability is why we make the big bucks. But 16 years and no lawsuits makes that argument sound pretty flimsy after awhile.
Allen: There is a misconception that I have a “compensation program”. I simply have an open mind. I don’t have a set fee. I may charge MORE than you for all we know. I am simply saying that I discuss the commission with the buyer and or seller, depending on which is my client and propose what I think is fair for each situation. I propose to THEM what I think is fair. Sometimes I just decide what I think is fair at the end of the game and throw a credit, if warranted, on the sheet through escrow without discussing it with the client at all. I am not for consumers getting a discount…I am for consumers having choices without having to go to a “discount” company to create options.
Someone who calls me and asks me to show them one house and they buy it that day, and they have a high credit score and do all of their loan work, and buy a new property that has no problems on the inspection report, is NOT going to pay the same as someone with different “issues”. Why shoud they? Price of house is a big factor in what I do and don’t do. I don’t believe in the word “discount” as that would sugges there is a set fee from which we “discount”.
Tim: I have never had someone tell me, or as far as I know feel, that I was overpaid. I have even had people try to pay me more after closing. If you weren’t out of my area I’d do a couple of closings with you so you can tell me why that is 🙂 I do what I do, but can’t compare it with what others do. I know what I do appears to be worth it to my clients.
Allen:
Your logic is flawed in your (mild) criticism of my experience as I raconteured on my blog. You state that when things slow down, I could have used that 1% of my commission I discounted. You’re making it sound like I should take advantage of these heady days of high appreciation and take full commissions since folks won’t be missing that money with all the cash being spread around. On the contrary, I’m offering a discounted commission because I am new, and this would attract someone who – all things being equal – would go with someone more experienced. My life experience gives me a skillset that easily makes up for my lack of direct real estate sales experience (business acumen, negotiating skills, large account and individual client service experience), and the discount is the hook.
Look, if I offer to list a $600K house for 2%, I will earn $12K instead of $18K. Not only is $12K nothing to sneeze at (and I left a 6 figure income), given the amount of work, from my work experience, that hook will yield additioanl referrals that will yield at least a 2% commission (only if I have to, at that point…). I agree with Ardell’s view in that each client relationship is unique, and to win each client, the compensation may be unique.
For example, Allen referred to an experience where a client I had been driving around, providing cross-tabbed analysis (on dup-quadplex income metrics – NOI, CapRate, etc.), and sharing ideas decided to use an agent she had some prior relationship with for a home purchase where the listing agent was this agent’s father-in-law (talk about conflict of interest). I was upset, and angry – until I realized it was out of my control. However, in order to recoup the investment into this ‘client’, I offered 1% of my commission as credit against her closing costs. Does this anger all of those ‘hold the 3% Maginot Line’ subscribers? I see it as a business decision I have made countless times in other industries. It’s a confidential business negotiation between agent and client.
Am I worried about not paying the bills by offering a commission structure that is less than the ‘standard’ 3%? No. My business model is based on scale and volume, which raises another question…if an agent approaches their work like a business, does it make sense to stick to a 3% commission structure? Especially in the early stages?
It’s your pasta sauce Ardell, the sauce. lol. 🙂
Just teasing. Actually from our experience, the better agents are not secret agents. They are involved, offer terrific support & service and have a genuine desire to serve, which is distinctly different than routine service.
Ironic as it seems, some the most consistent business producing agents we work with are those whom you would never in a million years think they would do that kind of business. It’s the people who are real, have a “salt” about them that’s appealing to their customer base, and just get it done without the fluff. Over breakfast a while back we asked one agent about their success secret a few months ago and she basically said to my wife (I’m paraphrasing) ,”I had to unlearn a lot of the closing techniques that are pounded into us and stop acting like I needed the commission check. When that happened, I focused on the needs of my client whether I made a deal or not, and guess what, the sales started coming more easily. Closing techniques are for those who have not fulfilled their clients needs.” I’ll never forget that because there are lessons from that I can apply to our small business too.
Maybe that’s you Ardell, maybe that’s your secret too. And, we close transactions and do signings all over the place, so when the time is right for you, look us up. I kid you not, 80% of the Realtors we work with now had rejected us (mom n pop shop, etc…)initially and had told either my wife or myself that they only work with so and so at xyz title company.
Pretty tough to have your questions answered or have a conversation about your transaction at 9:30pm at night by your title company escrow staff. Then again, we don’t have the luxury of a pipeline of deals coming our way via title or mortgage or r.e. brokerage affiliated business relationships. So, we make it very hard for our existing Realtor clients to leave.
It’s your pasta sauce Ardell, the sauce. lol. 🙂
Just teasing. Actually from our experience, the better agents are not secret agents. They are involved, offer terrific support & service and have a genuine desire to serve, which is distinctly different than routine service.
Ironic as it seems, some the most consistent business producing agents we work with are those whom you would never in a million years think they would do that kind of business. It’s the people who are real, have a “salt” about them that’s appealing to their customer base, and just get it done without the fluff. Over breakfast a while back we asked one agent about their success secret a few months ago and she basically said to my wife (I’m paraphrasing) ,”I had to unlearn a lot of the closing techniques that are pounded into us and stop acting like I needed the commission check. When that happened, I focused on the needs of my client whether I made a deal or not, and guess what, the sales started coming more easily. Closing techniques are for those who have not fulfilled their clients needs.” I’ll never forget that because there are lessons from that I can apply to our small business too.
Maybe that’s you Ardell, maybe that’s your secret too. And, we close transactions and do signings all over the place, so when the time is right for you, look us up. I kid you not, 80% of the Realtors we work with now had rejected us (mom n pop shop, etc…)initially and had told either my wife or myself that they only work with so and so at xyz title company.
Pretty tough to have your questions answered or have a conversation about your transaction at 9:30pm at night by your title company escrow staff. Then again, we don’t have the luxury of a pipeline of deals coming our way via title or mortgage or r.e. brokerage affiliated business relationships. So, we make it very hard for our existing Realtor clients to leave.
Yes! Errand Boy, you hit it on the head! My ethics and committment to serving the needs of the client is non-negotiable; however, at the stage I’m at in the business, I have no reputation. My discounted commissions act as a ‘loss leader’ and get clients in the door, where once there, are wowed, and eagerly refer others to the experience I offer.
I offered to list a home in SKAGIT VALLEY for 2%, just to get experience and build my business. When he challenged me on value, I was direct and honest, and told him the listing prices suggested by others will result in his house languishing for months (I did my research…I love data :).
It’s true, when you have an air of desperation, it’ll be obvious from a mile away. That’s where life and relevant business experience give me an upper hand. It’s a numbers game. I know that *my* game will pay off in the long term – I’ve experienced this time and time again. As long as I stick to my ethics, and stick to what has worked with me in the past, I’ll succeed.
As an aside, this reminds me of working with new yorkers when I was a tour guide 15 years ago. When I first started, I got killed by them because I was too nice. With New Yorkers, you have to throw it back in their face. Once, a ‘212’ as we called them, came up to me after a night at the Banff Springs Hotel and told me her toilet had kept her awake all night. Without missing a beat, I told her that if she had called me at 1am, I could have done something about it, so why was she bothering me now with this problem? Boy, she respected that, and it shut her right up. 🙂
Yes! Errand Boy, you hit it on the head! My ethics and committment to serving the needs of the client is non-negotiable; however, at the stage I’m at in the business, I have no reputation. My discounted commissions act as a ‘loss leader’ and get clients in the door, where once there, are wowed, and eagerly refer others to the experience I offer.
I offered to list a home in SKAGIT VALLEY for 2%, just to get experience and build my business. When he challenged me on value, I was direct and honest, and told him the listing prices suggested by others will result in his house languishing for months (I did my research…I love data :).
It’s true, when you have an air of desperation, it’ll be obvious from a mile away. That’s where life and relevant business experience give me an upper hand. It’s a numbers game. I know that *my* game will pay off in the long term – I’ve experienced this time and time again. As long as I stick to my ethics, and stick to what has worked with me in the past, I’ll succeed.
As an aside, this reminds me of working with new yorkers when I was a tour guide 15 years ago. When I first started, I got killed by them because I was too nice. With New Yorkers, you have to throw it back in their face. Once, a ‘212’ as we called them, came up to me after a night at the Banff Springs Hotel and told me her toilet had kept her awake all night. Without missing a beat, I told her that if she had called me at 1am, I could have done something about it, so why was she bothering me now with this problem? Boy, she respected that, and it shut her right up. 🙂
Wow, leave a one-liner post and a link to an article, leave town for a day to do a Bloginar and all hell breaks loose.
My original post was designed to illustrate what appeared to be one Realtor’s perspective that the ability to sell a home was directly tied to the SOC and her own questioning of the ethics of the “system.” As sometimes happens, the conversations twisted and turned toward a discussion on whether agents are paid too much or not enough. That was not the purpose of my original post but it has been an interesting conversation nonetheless.
Personally, as I mentioned before, real estate agents should be able to make as much money as they can legally put their hands on. How much each agent makes should be based, at least in part, on free market economics.
While there have been many good and otherwise interesting comments, one comment made by Allen really stood out to me. He said:
“The observation im making is that it is not the consumers pounding their fists on the desk saying they want to pay less. It’s the agents telling the consumer they are paying too much.”
How many consumers were pounding their fist on the desk saying that they were paying too much in stock brokerage commissions before the advent of online flat fee trades? I wasn’t. How many of these same consumers were pounding their fist on the desk saying that they were paying too much in travel agent fees before the advent of direct airline online ticketing? I wasn’t. Does the fact that there was no ‘fisting pounding’ make these innovations inherently bad or unwanted? No. In fact I like not paying a stock broker a percentage to complete a trade and I like the ability to buy a plane ticket in my PJs at midnight without talking to anyone.
To be clear, I am not saying that selling or buying a home is analagous to selling/buyer stocks or buying an airline ticket. It is a far more complex transaction that is subject to far greater risks to the participants. I am, however, saying the same principles of innovation and progress can and should apply. And innovation in the real estate industry (or the lack thereof) is what the DOJ and the FTC and Senator Oxley are all hot and bothered about.
The median price of a home in King County is fast approaching $500K. No matter how you cut it, the average seller using a traditional broker pays somewhere between $20-30K in order to sell their home. Even if you take Ardell’s stance that the buyer is really paying half this fee, then each party is paying somewhere between $10-15K for brokerage services. For the average consumer who owns an average home in King County, Washington, this is a tremendous amount of money and represents probably the third largest single expenditure on a good or service that they will ever make (House first, car second). When was the last time you bought a single good or service that cost this much. Does not happen often.
For a moment, forget about whether the price is worth it. It may be. It may not be. That’s not the point. The point, I believe, is that it’s a lot of money for a consumer service and that attacts attention from innovators who want a piece of the pie. The (and I hate to use this term) “traditional” industry can do one of two things. It can innovate and try to be leader of change in the industry (thereby staying ahead of the outsiders who want a piece of the pie) OR it can hunker down, try to protect the status quo and continue to deal with the government.
There is considerable risk either way…
Russ
Wow, leave a one-liner post and a link to an article, leave town for a day to do a Bloginar and all hell breaks loose.
My original post was designed to illustrate what appeared to be one Realtor’s perspective that the ability to sell a home was directly tied to the SOC and her own questioning of the ethics of the “system.” As sometimes happens, the conversations twisted and turned toward a discussion on whether agents are paid too much or not enough. That was not the purpose of my original post but it has been an interesting conversation nonetheless.
Personally, as I mentioned before, real estate agents should be able to make as much money as they can legally put their hands on. How much each agent makes should be based, at least in part, on free market economics.
While there have been many good and otherwise interesting comments, one comment made by Allen really stood out to me. He said:
“The observation im making is that it is not the consumers pounding their fists on the desk saying they want to pay less. It’s the agents telling the consumer they are paying too much.”
How many consumers were pounding their fist on the desk saying that they were paying too much in stock brokerage commissions before the advent of online flat fee trades? I wasn’t. How many of these same consumers were pounding their fist on the desk saying that they were paying too much in travel agent fees before the advent of direct airline online ticketing? I wasn’t. Does the fact that there was no ‘fisting pounding’ make these innovations inherently bad or unwanted? No. In fact I like not paying a stock broker a percentage to complete a trade and I like the ability to buy a plane ticket in my PJs at midnight without talking to anyone.
To be clear, I am not saying that selling or buying a home is analagous to selling/buyer stocks or buying an airline ticket. It is a far more complex transaction that is subject to far greater risks to the participants. I am, however, saying the same principles of innovation and progress can and should apply. And innovation in the real estate industry (or the lack thereof) is what the DOJ and the FTC and Senator Oxley are all hot and bothered about.
The median price of a home in King County is fast approaching $500K. No matter how you cut it, the average seller using a traditional broker pays somewhere between $20-30K in order to sell their home. Even if you take Ardell’s stance that the buyer is really paying half this fee, then each party is paying somewhere between $10-15K for brokerage services. For the average consumer who owns an average home in King County, Washington, this is a tremendous amount of money and represents probably the third largest single expenditure on a good or service that they will ever make (House first, car second). When was the last time you bought a single good or service that cost this much. Does not happen often.
For a moment, forget about whether the price is worth it. It may be. It may not be. That’s not the point. The point, I believe, is that it’s a lot of money for a consumer service and that attacts attention from innovators who want a piece of the pie. The (and I hate to use this term) “traditional” industry can do one of two things. It can innovate and try to be leader of change in the industry (thereby staying ahead of the outsiders who want a piece of the pie) OR it can hunker down, try to protect the status quo and continue to deal with the government.
There is considerable risk either way…
Russ
Allen – I re-read #26 and while we’re “close”, I don’t think you’re 100% correct (although I wish you were). I think what it boils down to for me is your description sounds like the “ideal world”. If a seller or listing agent markets and prices a property correctly, and it’s “in demand”, buyers and buyers’ agents will find it and go after it.
In the current world, even if the seller and listing agent do their job, it seems like a number of buyer’s agents will avoid showing it to the buyer unless the commission is “just right”. And organizations like the NAR have done their best over the years to keep any alternative models (e.g. discount brokers) out of any RE marketplace. These really meet the textbook definition of collusion.
Again, I don’t want to put agents down (on either side of the transaction). I’ve liked my agent (and I’ve worked with him three times so far) and always felt like he represented me properly. I just think it’s time for more transparency, the elimination of the conflict-of-interests and for innovations in technology to decrease the costs involved in buying and selling real estate.
(Note I didn’t say “disintermediate the agents”. But technology can be used to make a good agent more productive, if it hasn’t already. Combined with the significant increase in home prices, this should make it possible, a la SeattleEric, to still make a good living even with a reduced commission or a fixed-fee structure).
Allen – I re-read #26 and while we’re “close”, I don’t think you’re 100% correct (although I wish you were). I think what it boils down to for me is your description sounds like the “ideal world”. If a seller or listing agent markets and prices a property correctly, and it’s “in demand”, buyers and buyers’ agents will find it and go after it.
In the current world, even if the seller and listing agent do their job, it seems like a number of buyer’s agents will avoid showing it to the buyer unless the commission is “just right”. And organizations like the NAR have done their best over the years to keep any alternative models (e.g. discount brokers) out of any RE marketplace. These really meet the textbook definition of collusion.
Again, I don’t want to put agents down (on either side of the transaction). I’ve liked my agent (and I’ve worked with him three times so far) and always felt like he represented me properly. I just think it’s time for more transparency, the elimination of the conflict-of-interests and for innovations in technology to decrease the costs involved in buying and selling real estate.
(Note I didn’t say “disintermediate the agents”. But technology can be used to make a good agent more productive, if it hasn’t already. Combined with the significant increase in home prices, this should make it possible, a la SeattleEric, to still make a good living even with a reduced commission or a fixed-fee structure).
Inman News has a survey today called
“What is impacting commissions? Get inside the Commission Black Box.”
I found two issues within Inman’s Survey questions interesting. One answers Allen’s query about making more now than ten years ago. “How much do you pay your broker today? How much did you pay your broker when you were a new agent?
So far we have been talking about agents making more via increased prices. But in traditional companies, an agent makes because he pays his broker less. When I started, I paid 50% of the commission to the broker. Today most experienced agents pay 10% or less to their broker or pay desk fees or an annual flat fee. So an experienced agent’s income goes up by paying the broker less.
What I found MOST interesting about the Inman Survey on Commissions is NOT ONCE does it mention Buyer Agent Fees. It’s all about the seller, what the seller will pay. The Buyer is left completely out of the equation with regard to the topic.
Inman News has a survey today called
“What is impacting commissions? Get inside the Commission Black Box.”
I found two issues within Inman’s Survey questions interesting. One answers Allen’s query about making more now than ten years ago. “How much do you pay your broker today? How much did you pay your broker when you were a new agent?
So far we have been talking about agents making more via increased prices. But in traditional companies, an agent makes because he pays his broker less. When I started, I paid 50% of the commission to the broker. Today most experienced agents pay 10% or less to their broker or pay desk fees or an annual flat fee. So an experienced agent’s income goes up by paying the broker less.
What I found MOST interesting about the Inman Survey on Commissions is NOT ONCE does it mention Buyer Agent Fees. It’s all about the seller, what the seller will pay. The Buyer is left completely out of the equation with regard to the topic.
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I am not shocked Ardell. I do think that a buyer broker is almost a fairy tale. I know that we don’t practice that here in NY – so I was shocked to see it being “practiced” elsewhere. We can barely even get our buyers to SIGN the agency disclosure let alone PAY us at closing.
My shock Christine is that licensees think that a buyer needs to sign a buyer agency agreement and/or separately pay for the service outside the current system, to receive “buyer broker” level services.
This is also one of the main reasons I am mad at NAR, and am not a Realtor at present, after having been a Realtor for most of my real estate career.
“Buyer Agent” became a lip-service only, bullshit title and even those that spearhead “the cause of buyer agency” nationally, end up being a “follow the money” thinking group.
Like I said before…I gave the industry OVER TEN YEARS to sort it out and actually PRACTICE Buyer Agency on an equal basis to Seller Agency. Now I’m just doing my own thing to elevate the buyer to the seller’s level. Not PAST the seller’s level, but equal representation WITHIN the current system as it exists today.
As to NY…I am amazed, and yes shocked, that an area that has had Buyer Agency AND is mostly represented by attorneys in escrow, is still in “fairy tale” land as to buyer brokerage.
I not only shocked…I’m nauseous.
Ardell – I dont know if you are misunderstanding me, but I never said I was for or against the “Buyer Agent” title, I am saying that it is non-existent here. I can’t say that I am part of the “follow the money group” but call me greedy if I want to get paid for my services and time, and here you have to be paid by the buyer to represent them. I do agree with you that buyers should have and deserve equality within the system – but I also think that there should peace in the world and that does not seem to happen either.
60. Record?
Christine, I am clearly not shocked at (or disappointed) with you, personally. I am shocked because I represented New Yorkers as a buyer’s agent (when they were buying in Bucks County, PA) back in the early to mid nineties. In fact, it was the New Yorkers who came into PA “demanding” Buyer Representation.
Are you saying no one in your area is representing a buyer as a client? That the title Buyer Agent doesn’t exist?
Christine, I am clearly not shocked at (or disappointed) with you, personally. I am shocked because I represented New Yorkers as a buyer’s agent (when they were buying in Bucks County, PA) back in the early to mid nineties. In fact, it was the New Yorkers who came into PA “demanding” Buyer Representation.
Are you saying no one in your area is representing a buyer as a client? That the title Buyer Agent doesn’t exist?
No one in my area is representing the buyer. Well, let me put it this way – I am a manager of a firm here in NY, and my new agents are very combobulated on who and what they are representing. Most and I mean 99% of listings go onto MLS – (I am talking withing the past year). If an agent shows a property off MLS (no matter in my office or out of my office), they are automatically “representing the seller” I could have friends for 20 years and show them a listing off MLS and not even know the seller – but bottom line the seller is my client and my friends of 20+ years are my customers – I still can not represent them – Well, wait a minute – I can represent them – but I will NOT be paid from the sale off MLS, if I do not have an agreement signed with them (buyers)that they are paying me. There is no commission due to the Buyers Agent off MLS – There is a spot to include it – but 99.9% of listing agents offer $0 to the Buyer Broker. Back in the late 90’s and early 2000 era – agents used the buyer broker card to show exclusives – but they were still not getting paid from the listing agent – so you had to predetermine this with your buyer. They (the buyers) were so caught up in the Dollars that they would rather refuse. But, one thing further – here in NY – my extent as an agent is I procure a sale – from there after inspection, it goes to the representing attorney’s. We use binder’s – not contract. The contracts which become legal and binding are sent from the seller’s attorney with their terms. I then, sit and wait for closing. I of course keep in touch with both representing attorneys as well as my customer and client – but The title company is brought in from the attorney’s. All down payments are held in the seller’s attorney’s escrow account. We are very limited here and it confuse’s agents when you ask who is your customer and who is your buyer? In your post this morning you were talking about if the buyer needs to be at closing and do they need to take a day off for closing? Here, they do – you need to take that day off – at our closing table we have Title Closer, Both representing attorneys, Both the buyer and the seller, and possibly the agent(s). So, when the Nyer’s came to PA, they probably demanded a buyer agent because there were no attorneys reprenting them. So that I can understand.
So let me ask you a question – at the closing or before – If you are representing the buyer, how do you get paid? The buyer is coming up with the $ for the home they are buying, closing costs, and the agents fee? Or is the agents fee paid prior ? Or is that a fee that comes off the sales price and is predetermined in the listing? I am actually quite embarrassed to say I am confused on how it works in other state.
No one in my area is representing the buyer. Well, let me put it this way – I am a manager of a firm here in NY, and my new agents are very combobulated on who and what they are representing. Most and I mean 99% of listings go onto MLS – (I am talking withing the past year). If an agent shows a property off MLS (no matter in my office or out of my office), they are automatically “representing the seller” I could have friends for 20 years and show them a listing off MLS and not even know the seller – but bottom line the seller is my client and my friends of 20+ years are my customers – I still can not represent them – Well, wait a minute – I can represent them – but I will NOT be paid from the sale off MLS, if I do not have an agreement signed with them (buyers)that they are paying me. There is no commission due to the Buyers Agent off MLS – There is a spot to include it – but 99.9% of listing agents offer $0 to the Buyer Broker. Back in the late 90’s and early 2000 era – agents used the buyer broker card to show exclusives – but they were still not getting paid from the listing agent – so you had to predetermine this with your buyer. They (the buyers) were so caught up in the Dollars that they would rather refuse. But, one thing further – here in NY – my extent as an agent is I procure a sale – from there after inspection, it goes to the representing attorney’s. We use binder’s – not contract. The contracts which become legal and binding are sent from the seller’s attorney with their terms. I then, sit and wait for closing. I of course keep in touch with both representing attorneys as well as my customer and client – but The title company is brought in from the attorney’s. All down payments are held in the seller’s attorney’s escrow account. We are very limited here and it confuse’s agents when you ask who is your customer and who is your buyer? In your post this morning you were talking about if the buyer needs to be at closing and do they need to take a day off for closing? Here, they do – you need to take that day off – at our closing table we have Title Closer, Both representing attorneys, Both the buyer and the seller, and possibly the agent(s). So, when the Nyer’s came to PA, they probably demanded a buyer agent because there were no attorneys reprenting them. So that I can understand.
So let me ask you a question – at the closing or before – If you are representing the buyer, how do you get paid? The buyer is coming up with the $ for the home they are buying, closing costs, and the agents fee? Or is the agents fee paid prior ? Or is that a fee that comes off the sales price and is predetermined in the listing? I am actually quite embarrassed to say I am confused on how it works in other state.
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Fascinating thread going here (thanks sellsius for drawing our attention back to this “debate”). Like seattleeric, I’m in my second year of being a full-time Realtor, so enjoy discussions such as this to get a better, 360 view of the business.
I find it amusing that discussion has come to the idea that the seller is paying the commissions, so everyone is essentially working for the seller. Maybe it’s just a Western concept, but here a buyer’s agent had better be representing the buyer in every way possible. And, by the way, who is really shelling out the money? The buyer, of course. Greg Swann addresses just this issue in today’s article of the Arizona Republic.
Christine,
Sounds like a good reason why we don’t want attorneys ruling the marketplace 🙂 I had no idea buyer agency was still stuck in the dark ages back there. I started “back there” (So. Jersey/Bucks County, PA) during subagency in 1990 and was already doing buyer agency before I left in 1996. I totally “get” how your system functions, as it sounds exactly the same way as it did ten years ago! South Jersey and Bucks County did not and still does not, North Jersey and New York have always been “different” and binder based due to the attoney involvement. South Jersey had a hybrid of the two.
I clearly expected more to happen in ten years with regard to change.
SeattleEric – Nice to read you. I’m in my second year as a licensed agent working in the Los Angeles and San Fernando Valley areas. My first year was quite an experience. My strategy was similar to yours, cut my commission to get people in the door. What was interesting were the reactions I got from other agents. I did two listings at 4%. The first one, I decided to split 50/50 with the buyer’s agent and posted 2% in the mls. I got calls from agents who said they would not show my listing to their clients unless I adjusted. The second one I gave 2.5% to the buyer’s agent. My client told me that when he met with other agents, they all told him that no one would sell his home for less than 5% and if any agent did, no agent would bring buyers to his home. I met him at an open house I held for the first 4% listing. I told him that by law commissions are negotiable and took the listing, making sure to give 2.5% to the buyer’s agent. I wasn’t worried about agents not bringing their buyers to show the property because both homes were located in very desireable neighborhoods in Burbank and agents know this, but they were threatening the sellers in an effort to steer them away from me.
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> Marlow – You beat me to it! I’m really not jumping on your bandwagon here, but I do the same thing you do.
Same here. I am a Realtor in Austin and work the fee with Buyers exactly as stated. The Buyer Rep Agreement determines my compensation, not the MLS Listing. It is the buyer who might choose to penalize that listing (due to a lower Seller contribution toward my fee), not me.
It is therefore Buyer behavior, not Realtors, who create pressure toward maintaining a narrow range of Buyer Agent Commissions being offered in MLS listings.
Ironically, it is also the Discount Brokers who promise Buyer commission rebates from the buyer agent commission that stoke this buyer behavior. If a buyer agent were, for example, to say he will charge 1.5% and rebate to the buyer 1.5%, the buyer immediately banks that money mentally toward closing costs, and will still penalize the lower commission listing because they see it as money out of their pocket.
In the commission debate, what’s good for Sellers is not good for Buyers. Since most of us are both, at one time or another, there can be no permenant giving away from one side of the deal to the other.
Steve
> Marlow – You beat me to it! I’m really not jumping on your bandwagon here, but I do the same thing you do.
Same here. I am a Realtor in Austin and work the fee with Buyers exactly as stated. The Buyer Rep Agreement determines my compensation, not the MLS Listing. It is the buyer who might choose to penalize that listing (due to a lower Seller contribution toward my fee), not me.
It is therefore Buyer behavior, not Realtors, who create pressure toward maintaining a narrow range of Buyer Agent Commissions being offered in MLS listings.
Ironically, it is also the Discount Brokers who promise Buyer commission rebates from the buyer agent commission that stoke this buyer behavior. If a buyer agent were, for example, to say he will charge 1.5% and rebate to the buyer 1.5%, the buyer immediately banks that money mentally toward closing costs, and will still penalize the lower commission listing because they see it as money out of their pocket.
In the commission debate, what’s good for Sellers is not good for Buyers. Since most of us are both, at one time or another, there can be no permenant giving away from one side of the deal to the other.
Steve
I am curious about closing costs. I’ve now bought and sold three houses, and the bullshit charges at closing have multiplied. I’m now paying an attorney’s fee (though I don’t see her/him), a courier fee (though I saw the materials for the first time at closing) and hundreds of other dollars in bullshit fees, including title insurance.
How can I stop this thievery?
El,
Where are you and are you a cash buyer or financing the sale. Lender requires a lot of “stuff” if you are financing.
El,
Where are you and are you a cash buyer or financing the sale. Lender requires a lot of “stuff” if you are financing.
Have any of you read Inman’s recent report “Inside the commission black box?” I have not as Inman is tryng to charge $550 to download the report (too rich for my blood), but I was wondering if any of you folks have read it and, if so, would you care to comment on it.
p.s. I find it odd that Inman asks for Realtors to take time to do survey (the source of the report) for free and then Inamn turns around to those same Realtors and attempts to charge them a ridiculous amount to view the reults of this survery (even subscribers) C’mon Inman! Pehraps someone will publish it online (Digg, ActiveRain, Raincityguide, etc.)–wouldn’t that be nice.
Have any of you read Inman’s recent report “Inside the commission black box?” I have not as Inman is tryng to charge $550 to download the report (too rich for my blood), but I was wondering if any of you folks have read it and, if so, would you care to comment on it.
p.s. I find it odd that Inman asks for Realtors to take time to do survey (the source of the report) for free and then Inamn turns around to those same Realtors and attempts to charge them a ridiculous amount to view the reults of this survery (even subscribers) C’mon Inman! Pehraps someone will publish it online (Digg, ActiveRain, Raincityguide, etc.)–wouldn’t that be nice.