Future of RE agent commissions (commission, Realtors, insurance, closing)

[AD1985]

I'm not in the industry and just wondering.... are RE agents seeing any pressure to lower their fees? Or does it look like commissions will hold steady at 6% for the foreseeable future?

Thanks

[Captain Bill]

Originally Posted by AD1985

I'm not in the industry and just wondering.... are RE agents seeing any pressure to lower their fees? Or does it look like commissions will hold steady at 6% for the foreseeable future?

Thanks

CONTINGENCY

Most of the general public do not understand that the commission basis is simply a Contingency arrangement, just like attorney's use. The pay is contingent on a successful closing of a transaction. If it doesn't close the Realtor does not get paid. Therefore, that commission rate must be higher than what would be paid if the pay was based on an hourly fee.

HOURLY FEE, or FEE FOR A SPECIFIC ACTIVITY

If one goes to an attorney, the client will pay an hourly fee for the attorney's time/expertise.

With that hourly fee, the Client assumes the Risk.

An option is to hire the attorney on a Contingency basis. The attorney will take it if s/he feels there is a chance of winning.

With the Contingency fee basis, the Attorney assumes the Risk. There is no upfront cost to the client.

However, the contingency fee will be around 35% plus out of pocket costs. That amount will be higher than the client would have paid had she paid by the hour.

WHY is the price higher? Simple.

On the Contingency, the Risk is assumed by the attorney. Any time there is a Risk, there must be the Possibility of a higher Reward. The attorney will not win every case that is taken on Contingency, so there must be a balancing factor.

TRANSFER THAT TO THE REALTOR

Under the Commission fee basis, the Realtor assumes All the Risk

The Realtor puts up the up front marketing costs, and provides all the services on a Contingency basis. That is s/he does not get paid unless there is a successful sale and close of escrow.

Not all homes on the market sell, for many reasons. Therefore, the Realtor is not going to be paid on possibly half of the listings.

Because the Realtor is assuming all the Risks, there must be a greater Reward.

OPTION.

Now, just as the attorney's have an hourly fee, and some flat fees for certain services, the Realtor can adopt the same model.

There are many steps involved in a real estate transaction, and they require many hours of the Realtors time. It is not only the time that the Realtor spends face to face, or on the phone with you. There is much work done in the background on the client's behalf.

The Realtor can develop an hourly fee, and a few different fees for different services that require different levels of skill.

In addition s/he can develop a fee for several bundles of activities.

The end result is the cost will be less to the Seller, and the Realtor will be paid for all of his work hours.

However, the seller has assumed the Risk. (The Reward the seller gets for that Risk is less cost) The Seller will be paying a retainer plus replenishing that retainer on a monthly basis as the hourly charges are added.

If Sellers want the Insurance of not having to pay anything if their house does not sale, by transferring the Risk to the Realtor, then the commission rate must remain higher than the Realtor would be paid if charging on an hourly basis for all his time.

If Sellers want to be self insured, and pay less, then don't ask Realtors to work on a Contingency basis. Negotiate an hourly rate, or bundled rate.

There are Realtors who have developed this alternate pay method.

[Bill Keegan]

Originally Posted by AD1985

I'm not in the industry and just wondering.... are RE agents seeing any pressure to lower their fees? Or does it look like commissions will hold steady at 6% for the foreseeable future?

Thanks

What makes you think that commissions are at 6% now?

Real estate agents have seen pressure to lower fees for years. Competition for business, new business models, new marketing methods, the strength or weakness of the housing market are some of the many factors that affect the commission rates being charged and paid. The NAR doesn't track (or doesn't publish if they do track) commission rates (they're afraid of being accused of anti trust violations if one Realtor says the word commission while another Realtor is within earshot) but data from other, non-Realtor tracking organizations has suggested that the "average" commission nationally has been below 6% for a few years. But then, when the job (in this case, marketing and selling a house) becomes more difficult, as market conditions through most of the nation suggest it has, one can often expect the price of successfully completing that job to go UP, not down.

[Brandon Hoffman]

Actually less than in a sellers market. I think the sellers realize it's tougher now and they are willing to pay for the better agents.

[Koale]

Originally Posted by Captain Bill

CONTINGENCY

Most of the general public do not understand that the commission basis is simply a Contingency arrangement, just like attorney's use. The pay is contingent on a successful closing of a transaction. If it doesn't close the Realtor does not get paid. Therefore, that commission rate must be higher than what would be paid if the pay was based on an hourly fee.

HOURLY FEE, or FEE FOR A SPECIFIC ACTIVITY

If one goes to an attorney, the client will pay an hourly fee for the attorney's time/expertise.

With that hourly fee, the Client assumes the Risk.

An option is to hire the attorney on a Contingency basis. The attorney will take it if s/he feels there is a chance of winning.

With the Contingency fee basis, the Attorney assumes the Risk. There is no upfront cost to the client.

However, the contingency fee will be around 35% plus out of pocket costs. That amount will be higher than the client would have paid had she paid by the hour.

WHY is the price higher? Simple.

On the Contingency, the Risk is assumed by the attorney. Any time there is a Risk, there must be the Possibility of a higher Reward. The attorney will not win every case that is taken on Contingency, so there must be a balancing factor.

TRANSFER THAT TO THE REALTOR

Under the Commission fee basis, the Realtor assumes All the Risk

The Realtor puts up the up front marketing costs, and provides all the services on a Contingency basis. That is s/he does not get paid unless there is a successful sale and close of escrow.

Not all homes on the market sell, for many reasons. Therefore, the Realtor is not going to be paid on possibly half of the listings.

Because the Realtor is assuming all the Risks, there must be a greater Reward.

OPTION.

Now, just as the attorney's have an hourly fee, and some flat fees for certain services, the Realtor can adopt the same model.

There are many steps involved in a real estate transaction, and they require many hours of the Realtors time. It is not only the time that the Realtor spends face to face, or on the phone with you. There is much work done in the background on the client's behalf.

The Realtor can develop an hourly fee, and a few different fees for different services that require different levels of skill.

In addition s/he can develop a fee for several bundles of activities.

The end result is the cost will be less to the Seller, and the Realtor will be paid for all of his work hours.

However, the seller has assumed the Risk. (The Reward the seller gets for that Risk is less cost) The Seller will be paying a retainer plus replenishing that retainer on a monthly basis as the hourly charges are added.

If Sellers want the Insurance of not having to pay anything if their house does not sale, by transferring the Risk to the Realtor, then the commission rate must remain higher than the Realtor would be paid if charging on an hourly basis for all his time.

If Sellers want to be self insured, and pay less, then don't ask Realtors to work on a Contingency basis. Negotiate an hourly rate, or bundled rate.

There are Realtors who have developed this alternate pay method.

All this typing and you didn't answer the question at all. It's an interesting question that could shed a bit of light for all.
Koale

[2bindenver]

I actually think more businesses will adopt a commission based structure in the near future.

Those very productive employees will be paid better, and those that do not get the job done will have nothing to show for it.

[Silverfall]

Originally Posted by AD1985

I'm not in the industry and just wondering.... are RE agents seeing any pressure to lower their fees? Or does it look like commissions will hold steady at 6% for the foreseeable future?

Thanks

I am seeing fees go up in my area. The risk is larger so the reward must be larger.

[DMenscha]

In my listings I strive to get the 6% and 10% which are customary in my area. As we get to closing I have adjusted that number downward if there is a reason to do so. I try to avoid that, but I also try to be fair to my sellers.

[llowllevellowll]

I know a guy who (probably illegally) advertises, "I'll accept 5% on any deal!" (6% is customary in my area).

I think what most consumers don't know is that that number is generally split 4 different ways. The meager sums that are made on the median U.S. home isn't nearly as extravagant as some think; any alterations in the future wouldn't be by much or the industry would cease to exist.

[Silverfall]

Originally Posted by Parti Rhinocéros

I know a guy who (probably illegally) advertises, "I'll accept 5% on any deal!" (6% is customary in my area).

I think what most consumers don't know is that that number is generally split 4 different ways. The meager sums that are made on the median U.S. home isn't nearly as extravagant as some think; any alterations in the future wouldn't be by much or the industry would cease to exist.

Agents can advertise their fees just like grocery stores can. They just can't conspire to have everyone charge the same thing.