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Be realistic here. Housing prices have doubled in the last 6-8 years. That means if your percentage stayed the same, your salary would double.
Just my opinion of course.
Over the last 50 years, housing has barely kept up with inflation. That's the reality. So commissions too, have just kept up with inflation.
I think the main issue that the real estate world is dealing with is the perception of "value added service". You have the public, who only sees their one commission they are paying to sell their home, which in today's dollars might be $12 - $18,000+ (which gets split and re-split infinitum). In a world of little to no equity and falling home values, the commission basically puts a lot of people upside down at the closing table. Then you have the majority of agents' perceptions, which is trying to squeak out 1/2 dozen closings a year to hopefully earn $30,000 year. Customers feel they pay too much, agents don't make enough. So what will give first? I think the answer is fewer agents, doing more volume, making smaller commissions per sale.
The barriers of entry to the real estate industry need to be increased 10 fold, or the convergence of these two competing perceptions will come to an ugly head. You cannot have a sustainable business model that is basically: you have no choice, you have to use us. It will only work for so long.
I just want to thank the agents for the job they do! I have no interest in all the behind the scenes stuff other than having enough knowledge not to get screwed. I appreciate that it's a specialty and not everyone has the ability to do that job. Just like mortgage brokers...my eyes glaze over at all those numbers. I know enough but that's why they are there. It's human nature to want to save as much as you can but if my agent sells my house for what we are asking which is totally reasonable, she can have her 4%.
I don't know about other countries but, I'll take a stab at what happens in the US:
Let's say the listing commission is 6% and Broker A has the listing. Broker A's agent is on a 50/50 split commission basis.
An offer comes in from an agent with Broker B. This agent is also on a split commission basis with their broker of 50/50
The 6% may be divided as such:
3% to Broker A
3% to Broker B
Broker A pays 1.5% of the sale to their agent.
Broker A pays 1.5% of the sale to their agent.
Now, let me add a twist (fairly common one): Broker A got the listing because of a referral from Broker C in Podunk City. The referral agreement provides that Broker C will get 25% of whatever Broker A gets.
So, as a result, that 6% was divided up 5 ways.
Hope this helps
It helps to show where the money goes, but I still think 6% is too much. I'm glad I didn't have to pay 6% to sell my house. As soon as I chose the right realtor it sold in a matter of days. The others whom I had contracted to sell my house were incompetent at best, liars at worst. I'd have been annoyed if I had to pay them 2% of the sale price to sell my house. If I'd had to pay them 6%, I think my head would have exploded because they didn't do a thing to earn it.
The kid who sold my house, OTOH, did a good job and earned the 2.5% I paid him (commission was higher due to the fact that it was a multiple agency listing). The solicitors were paid a flat fee for conveyancing (less than 500 pounds), but those were the only two expenses I incurred while selling my house.
I realize that there are a lot of people involved in the transaction in the USA. My question is...why? I bring up the UK because my only experience buying and selling real estate was over there, and it's so different from over here. I don't understand why we "need" buyer's agents but they don't.
I think the thing that people have the hardest time with is that you're dealing with a percentage, not a rate.
Your advertising costs, fuel, time and all those other things have a set value. Pulling an ad doesn't costs what the space costs, not the value of what you're selling.
The costs of listing a $100K home are no less than those on a $300K home, yet the homeowner pays a difference of $12000 for the same service.
Ultimately REALTORS are the best socialists. You get charged based upon your ability to pay, not on the value of the service delivered.
First, that's not true at all. Second, it misses the bigger point.
Actually, I have to admit that technically you are correct. The cost of listing a $100k home is no less than the cost of listing a $300k home. But what you meant (or should mean, for this conversation to have any relevence) is that the cost of MARKETING those homes is no different. And that's the part that's incorrect. A smaller, less expensive home does not need to be advertised in the bigger, more prestigious, more expensive media outlets that are standard for the bigger more expensive homes. And with the bigger more expensive house, I'm going to use more space, and pay more for it, so I can showcase those great color photographs.
But that's not the real reason for the increase anyway. People aren't paying based on their ability to pay, but based on the amount of risk the real estate agent is taking and the benefit the seller will realize from the skills of that real estate agent.
When I list your house for sale, I don't take any of your money. I use MY money for the photographer, for the ads, for the flyers, for the brochures, for the mailings, for the web sites, for the brokers open houses where I provide a catered meal, for the toll free info line, for the color photos in high end magazines, etc. etc. My money, without ever asking you for a dime. And it's my time that goes into creating those brochures, proofreading those ads, organizing those showings, coordinating the brokers open houses, etc, etc. And I never ask you for any renumeration until the property is sold. And yes, the costs are a bit higher for the high end properties, but the risk is significantly greater. And the risk is all mine. As you go up in price, the pool of buyers for a house shrinks. It takes longer, usually, to sell those big expensive houses than it does to sell the average house in town. And it's entirely possible that the property doesn't get sold at all during the listing period. Especially since you, the seller, have all the authority over what the list price will be and what offers you will accept or decline. The risk is indeed greater on a $1million house than it is on a $300k house.
Then, when my skill as a marketer & a negotiator are put to work, they work for your benefit. Good marketing will attact more & better qualified buyers. Good negotiating skills will generate a higher sale price. Even if it's just 1% higher. One percent of a $1million house is a great deal more than one percent of a $300k house, and that money is for the seller.
The real estate agent takes a bigger risk when listing a more expensive property, and delivers greater return to the owners of those properties. That's why a commission based on the sale price of the property is fair, and accepted by most people who hire a professional to market their property for them. Ask anyone who understands business & investing. Or even Golf. The greater the risk, the greater the expected reward. If you want me to assume the risk, you need to pay me to do that. Now, if you want to pay me my fee up front, and not contingent upon my success at all, and then pay for any & all advertising I do, I'm sure I can agree to a lower number.
Location: On another site. This one is lame :) Trying to give it a second chance though.
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Quote:
Originally Posted by magellan
Over the last 50 years, housing has barely kept up with inflation. That's the reality. So commissions too, have just kept up with inflation.
I think the main issue that the real estate world is dealing with is the perception of "value added service". You have the public, who only sees their one commission they are paying to sell their home, which in today's dollars might be $12 - $18,000+ (which gets split and re-split infinitum). In a world of little to no equity and falling home values, the commission basically puts a lot of people upside down at the closing table. Then you have the majority of agents' perceptions, which is trying to squeak out 1/2 dozen closings a year to hopefully earn $30,000 year. Customers feel they pay too much, agents don't make enough. So what will give first? I think the answer is fewer agents, doing more volume, making smaller commissions per sale.
The barriers of entry to the real estate industry need to be increased 10 fold, or the convergence of these two competing perceptions will come to an ugly head. You cannot have a sustainable business model that is basically: you have no choice, you have to use us. It will only work for so long.
Of course, just my opine.
That's not really true for the last 6-8 years or so.
Transactions have shot up, and the time on the market dropped considerably. House prices, at least in the Northeast, doubled within 8 years.
I hardly call that just "keeping up with inflation". An agent selling 12 Elm Street in 2001 would have received $9000 commission. An agent selling 12 Elm Street in 2007 at the same commission rate would receive over $18,000.
I don't know about everybody else, but I have a day job. My salary didn't double from 2001 to 2007, and neither did inflation. The only thing commissions are currently in tune with are gas prices.
Homes are way over-valued today. Priced far beyond what someone can put down even 20% on and mortgage with an average salary. Agents would love to keep the 6% myth going and reap the benefits of this scenario, but the fact is as prices dramatically shoot up, commission percentages need to come down. Do agents deserve a raise since 2001? Sure, but not 100% of their 2001 earnings.
Those that accept this reality, get my business. Those that don't will be told "Don't let the door hit ya where the good lord split ya"
Everybody deserves to get paid, but not the kind of cheese some of these people are demanding.
The difference is that people in the UK don't seem to use buyer's agents, so there's not that person to pay. Even then, the selling agent doesn't make 3%. So again, I'm curious as to why US realtors feel they are entitled to such a high commission. I don't think they should have to work for free, but almost everything in the UK is so much more expensive than it is in the US...but selling houses is so much cheaper. I wonder why.
These are completely different systems and the agents in the UK do nowhere near the same amount of work nor do they lay out the same kind of money as agent in the US.
I certainly didn't say $100K v. $5M. I said $100K v. $300K
I'm a consumer. I just relocated from Canada to Texas, and am using REALTORS on both ends of the transactions, happy to do so, and totally value their professionalism and advice.
That being said, you're full of poo. I'm using a specific example. In the community that I ultimately have purchased in the homes ranged from $200K to $400K. Same neigbourhood, same amenities, same target groups. Please explain how the value of the marketing done is worth a difference of $12,000.
And if you want to argue different rate advertising, the difference between Homes Illustrated and Town and Country isn't 50X, which is what the difference of your commission is.
There is also the difference between what sells and what doesn't.
Quite a few more homes sell in the $100,000 range than the $300,000 range.
So if you lay out money on all your listings, even if it was the same on each(but it isn't), many times you will lay out money on the $300,000 listing and not recoup any of that money.
These are the chances we take by being in the industry, there are many discount realtors who you can use, you just get what you pay for.
This just goes back to the discount versus full service realtor. We have a thread like this pop up every few days or so.
They ask why realtors charge so much when what they really want to ask is why can't you do everthing you do at the same rate that the discount realtor will charge?
That's not really true for the last 6-8 years or so.
Transactions have shot up, and the time on the market dropped considerably. House prices, at least in the Northeast, doubled within 8 years.
I hardly call that just "keeping up with inflation". An agent selling 12 Elm Street in 2001 would have received $9000 commission. An agent selling 12 Elm Street in 2007 at the same commission rate would receive over $18,000.
I don't know about everybody else, but I have a day job. My salary didn't double from 2001 to 2007, and neither did inflation. The only thing commissions are currently in tune with are gas prices.
Homes are way over-valued today. Priced far beyond what someone can put down even 20% on and mortgage with an average salary. Agents would love to keep the 6% myth going and reap the benefits of this scenario, but the fact is as prices dramatically shoot up, commission percentages need to come down. Do agents deserve a raise since 2001? Sure, but not 100% of their 2001 earnings.
Those that accept this reality, get my business. Those that don't will be told "Don't let the door hit ya where the good lord split ya"
Everybody deserves to get paid, but not the kind of cheese some of these people are demanding.
No, I agree in some areas of the country values did double in the last 6 - 8 years (but not in most areas). But again, I think everyone agrees the last 6 - 8 years are an anomoly and a fluke, which probably won't be repeated in a long time. I'm not saying you are wrong in feeling that you are overpaying for a realtor to sell your home. I'm just saying that if you live in an area where values have gone up that fast, then you have experienced higher than average appreciation as well. I pay more than $3.00 for a gallon of gas now, including higher gas taxes, even though the pump doesn't go any faster, the clerk isn't any friendlier, and the gas station doesn't offer me any more services. It's directly because of global economic forces, just like the housing market has seen.
If you want me to assume the risk, you need to pay me to do that. Now, if you want to pay me my fee up front, and not contingent upon my success at all, and then pay for any & all advertising I do, I'm sure I can agree to a lower number.
Thanks for your comments Bill, I agree with you, to a point. As I've said in further comments, I'm not against Realtors as a profession. I've always used them in all my home purchases, and wouldn't consider going without.
I do find the Canadian system overall to be a bit more fair. Rates are generally 7/3. Seven percent on the first $100K and three percent on any subsequent amount. JMHO
Thanks for your comments Bill, I agree with you, to a point. As I've said in further comments, I'm not against Realtors as a profession. I've always used them in all my home purchases, and wouldn't consider going without.
I never thought you were against Realtors. And I'm not one of those guys who gets offended if someone ask why the fee is what it is. I think everyone should ask, should get an answer, should understand why it is what it is. Once they understand, they can make an informed decision. Hey, some of them might decide to take the risks themselves, pay the fee up front. Ya never know.
Last edited by Bill Keegan; 01-03-2008 at 02:00 PM..
Reason: typos
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Thank You!
I never thought you were against Realtors. And I'm not one of those guys who gets offended if someone ask why the fee is what it is. I think everyone should ask, should get an answer, should understand why it is what it is. Once they understand, they can make an informed decision. Hey, some of them might decide to take the risks themselves, pay the fee up front. Ya never know.
