Editor’s note: This series focuses on the results of a futuristic survey that asked readers to consider the state of the real estate brokerage industry in the year 2020. This article examines real estate compensation practices in the next decade. Part II takes a look at how the number of industry participants may change in the coming years and the trends they predict will drive the industry in the future. Part III examines how agents envision spending their time in 2020 and the relevancy of brokers, multiple listing services and associations. And Part IV peeks into the up-and-coming technology agents and brokers predict will dominate the industry in 2020.
By the year 2020, consumers will increasingly pay real estate professionals based on the specific services they select, according to the results of a survey conducted by Inman News.
The online survey, conducted from Feb. 5 to March 5, asked readers to envision the business of real estate brokerage in the year 2020. Four questions on the survey focused on the structure of compensation for real estate professionals, with each question receiving 505 responses.
When asked what will change the most about real estate compensation, the largest share of respondents — 40.4 percent — said that fees will increasingly be based on the consumer’s selection of services by the year 2020.
Additionally, 17.4 percent of respondents said that brokers "will increasingly charge a flat fee" for real estate services. So more than half of respondents (57.8 percent) believe that real estate services will increasingly be fee-based in the next 10 years, moving away from the traditional commission structure.
Note: Chart data may not add up to 100 percent due to rounding.
Although real estate agents and brokers have predicted for years that this "a la carte" payment structure would gain popularity, the standard compensation structure — in which the seller agrees to a commission for the listing broker that is based on a percentage of the home’s selling price, and usually ranges from 5 percent to 7 percent — continues to dominate.
But the wealth of information on the Internet, and a plodding economy, has led to consumers to become savvier and thriftier, many survey participants said, and therefore increasingly unwilling to pay the standard commission.
"The Internet is driving down costs and crushing the 3 percent seller, 3 percent buyer commission model," said John Wheaton, a mortgage consultant with Metlife Home Loans in Tustin, Calif. "Think Redfin or Zillow."
Buyers and sellers of the future are likely to find the menu-based approach to services increasingly attractive, some respondents said. …CONTINUED
"As consumers continue to perceive that they have done ‘some’ of the work for us, and search for a way to keep their costs down, they will continue to ask for concessions of one type or another. One way for this to come to pass, without the continued dickering over the commission structure, is to go to a fee-for-services-based model," said Stevie Bear of Presidio Group Realtors in Austin, Texas.
Items in a menu-based services format could include the preparation of a comparative market analysis, taking digital photos, providing signage, scheduling showings or holding open houses, entering a home into a multiple listing service, handling negotiations, suggesting staging ideas, managing the sale, reviewing paperwork, and assisting with disclosures, among other services.
Some respondents disagreed that the fee-for-services model will become the norm.
"That is too sophisticated for most buyers and sellers. They like flat fees," said Thomas Cruze, product manager at real estate research company DataQuick Information Systems.
Sixteen percent of respondents said that the current structure of compensation will not change significantly. The vast majority of Realtors are currently compensated through a traditional commission. According to the National Association of Realtors’ 2009 Member Profile, which is based on a member survey, about 90 percent of Realtors receive a commission for closed transactions.
About 14.1 percent of respondents to the 2020 Re-Envision survey said the cost of services will increasingly be based on the performance metrics of real estate professionals by 2020; and 3.8 percent said the cost of services will increasingly be based on customer satisfaction.
"Customers are very aware that there is a difference in talent and service from brokers/agents, and they will select one who … accomplishes the task effectively, avoids negative consequences or failed outcomes, and is worth the cost in terms of time, fees, ease of coordination vs. complication, etc," said Becky Jackson, principal broker at Realty Trust Group in Portland, Ore.
"For this reason, the broker/agent will not specify how their service is valued in terms of hours worked or itemized services on a menu, but by proving through testimonials and prior casework that their trustworthiness, accomplishments, skills and knowledge are more relevant and reliable for the customer’s desired outcome."
About half of respondents (50.5 percent) said the total cost of real estate services for consumers will decline at least slightly by 2020, while 29.3 percent said the cost would stay the same.
Consumers are increasingly negotiating for lower fees, some respondents say, and competition between agents is driving down compensation.
"There is so much publicity about real estate commissions that conversations with sellers usually begin these days with their asking what your commission structure is and how large a concession I am willing to make," said Ted Jernigan, a Realtor at Ebby Halliday Real Estate in Dallas, Texas.
"I may not be giving discounts, but enough people seem to be giving discounts to lower the average compensation." …CONTINUED
More than half of respondents (55.2 percent) said the total cost of brokers’ fees and commission splits that sales associates pay brokers would decline at least slightly by 2020.
"I think as the real estate market continues to struggle, both agents and the brokers will be looking at their costs and income. I believe you are going to see more mega-offices with many agents, low costs per agent and fewer services provided for the agent, but with a higher split to the agents," said Kris Coutant, associate broker at Keller Williams Realty Distinctive Properties in New York.
A little over one-fifth of respondents (21.8 percent) said that cost would stay about the same, while 23 percent said it would rise at least slightly.
Also, 44.6 percent of respondents said that the structure of compensation for buyer’s agents will be unchanged in the next 10 years, and that buyer’s agents will continue to be paid through the cooperative commission amount offered by the listing brokerage.
"I don’t see the amount of work actually required to change. There will always be contract time frames to adhere to, inspections to schedule, disclosures to oversee, visits to the property for various reasons, negotiating again as a result of inspections, communication between agents, lenders, appraisers, inspectors, consumer, etc," said Maribeth Reece, a Realtor at PMZ Real Estate Inc. in Riverbank, Calif.
The next-largest group of respondents (22.8 percent), said that buyers will negotiate the cost of services directly with their agent.
"With buyer’s agents, we are already seeing people negotiate flat fees or the percentage they are willing to pay," said Sibet Freides, president of Atlanta-based real estate marketing company Idea Associates.
According to 16.4 percent of respondents, buyer’s agents will charge based on specific duties performed and/or hours worked, regardless of whether the client purchases a home.
"I think all buyer’s agents should get paid up front a flat fee, to start the looking process for their clients. This would keep many, many tire-kickers out of the market and stop wasting everyone’s time. Also, people who change their mind would have (money on the line)," said Tammy Albea, broker-owner at The Urban Buyers Agent Inc. in Atlanta.
According to 12.1 percent of respondents, performance metrics such as the difference between a purchase price and the asking price, the ability to negotiate concessions, and time to closing will decide compensation in the future.
Just 1.8 percent of respondents said buyer’s agent compensation would depend on customer satisfaction.
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