The truth about real estate compensation

Submitted by Victor Schultz on February 15, 2009 - 12:38pm.

I remember when I first started out in Real Estate. I was with the biggest name broker in town. Back then they refused to let any of the agents show any listing that had discounted the compensation.

Those days have changed. Last time I checked, competition was a good thing. Unhappy with your competition's success? Stop whining and adapt to the market!

Victor Schultz
President
VTGlobe
http://www.vtglobe.com

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Submitted by Patrick Hulley on February 16, 2009 - 9:41am.

As a 21 year veteran of real estate I have seen many changes in our industry, from the adoption of cell phones to instant access to real estate information that normally took weeks to be shared (it suffices to say we, like today’s consumer do not rely on newspapers for new listing info). You would have to have your head stuck in the sand not to realize that the real estate industry like other industry’s is going to have to adopt it's commission structure to the reality of the market. The catch to this of course is that the changes to the industry make it more efficient for realtors also make it in a lot of ways more demanding...there is print advertising, web promotion a blog to run, network marketing sites, video presentation, too many emails to respond to, cell phone calls at all hours and last but by no means least real one to one showing of real estate and actual conversations with real people...align this with real estate brokerage model that for the most part are built more like a landlord / tenant relationship...I used to work at a Brokerage and the photo-copier trays all had little locks on them...so if they were empty of paper when you were in a Sunday rush to make copies...you were locked out. My point here is that any discussion of real estate commissions without a discussion of the typical brokerage model and it’s need to change is incomplete. There is no doubt commissions are going down yet any brokerage that wants to stake there business model by discounting rate and service is out to lunch...the two must co-exist and with the increase demand on the agent the model of convention does not fit. The result is agent opposition to the change that's coming like a railroad train of progress at the business.

In 1995 I acquired www.RealtySource.com (I turned down in the boom an offer for $100,000 for the name because I knew it was worth more to me) and in 2004 I final took my experience and thoughts on the market into what I saw as the direction of the business and that is high service at a fair prices. We openly offer 3.5% total commission and back it up with a different brokerage model concept, complete with in-house graphic design, auto managed web site upload for agents, online support tools, an open and shared database of resources and power tools, advertising and creative done for the agents review – not by the agent...and last but by no means least collective pooled advertising focused primarily on what the consumers want to see - product.

This model is not one to be built on volume of agents (i.e. I'll make it really cheap for agents and get as many as I can – ignoring service standards aside)...no the model takes a broker that is much more into support services than counting paper from a photo-copier (this brokerage model requires a broker to be all over the agent support side not just the rent side). Another element is the lean and mean approach...you don't need a big shop...you need a productive one. We consider ourselves...and I wished I would have marketed this more to the public (but you are always learning) as a boutique brokerage. In our market last year we came in fourth in MLS...we had at the start of this year 15 agents while our next closest competitor had 64 and number one had 150 plus. Less can and need to do more with pooled efficiencies as like any other industry the market can not sustain the commission rates like 5 to 6% (nor should it, just look at average sale price growth, volume and efficiencies available) nor can the market sustain the number of agents out there as volumes fall.

The bottom line is there has to be no discount in service, just increased consumer value to survive the reality of real estate of today and beyone!

Patrick Hulley, broker of record / President
RealtySource Inc., brokerage
www.realtysource.com
patrick@realtysource.com

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Submitted by lance shutter on February 20, 2009 - 7:48am.

As a Commercial/ Investment Broker my repeat business is consistant and since my clients are wiser than most they simply do not want to be bothered with inexperienced agents hoping to score a big one. Therefore I do not cooperate openly with other firms unless the Agent themselves are qualified. As a result I discount normal commission simply because my and my clients decision process is easier. Also in 90% of cases my client will also be performing a tax defered exchange I will be compensated for my efforts (continuing) on my clients behalf. Too many Agents look at most transactions as a "one shot" deal and do not establish a relationship with their clients.

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Submitted by Bruce Wagg on February 25, 2009 - 9:24pm.

Remember it is a marathon and not a sprint. You must build your business over time and discounting = shortchanging yourself.

Oakland Real Estate | Berkeley Real Estate

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Submitted by Don Anthony Gomez on March 2, 2009 - 10:50pm.

The thing that is "broken" with the industry is that the traditional model places the entire burden of the transaction on the agent vs a shared responsibility in the selling process. When the agent bears the entire risk, the "risk premium" results in, what most consumers perceive to be, a high commission when/if the property sells. When the seller of the property chooses not to participate (i.e. keep up the landscaping, clean the house, declutter, make it difficult to show, etc.), the agent has gotten a bad deal, spending time and money on a home that might otherwise sell. On the other hand, a Seller may be very motivated to sell, keeping the property in pristine condition and pricing it extremely competitively, almost causing the property to sell itself and allowing the agent to obtain an easy commission. Our business model mitigates this risk and puts the burden where it should be - on both parties to perform. We collect a small fee up front to compensate us in part for the time we take to advertise the property. To compensate us for our time and effort after listing the property, we collect a small commission that is free from the "risk premium" associated with collecting the entire compensation at the sale. The one thing I consistently hear from our clients is that our system is "fair". We get paid for our services and our clients save thousands.

Don Anthony Gomez
Owner/Broker
Don Anthony Realty
Charlotte, NC
http://www.DonAnthonyRealty.com

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Submitted by Jonathan Phan on March 6, 2009 - 9:32am.

Discounted listings are seen very often here in New Orleans.

Jonathan Phan

http://www.jonathansellshomes.com/

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Submitted by oliva barnand on April 13, 2009 - 10:57pm.

when we talk about compensation agents and brokers both behaves same manner, but still brokers makes more impact compare to agent, and about technology it does not affected so much to our real estate industry.
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Submitted by Ron Redlich on April 14, 2009 - 6:38am.

We're going into a strong buyer's market which will tend to increase commissions.

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Submitted by Alex Grex on April 29, 2009 - 5:41pm.

Commission rates are falling because; price of homes doubled since the 90s. I'm noticing even REO listings are paying listings agents sometimes 1.75% but the buyers agent 3%. Thats below 5%, but still giving the one with the buyers more. I think this system is fair.

Alex Greben
Portland Oregon Real Estate
http://www.nwmove.com/

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Submitted by John Smith on June 17, 2009 - 11:11pm.

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Submitted by Jems Riches on July 10, 2009 - 2:26am.

Good post about real estate compensation. Everyone share their experience and we will get knowledge. Thanks.

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Submitted by james lee on July 28, 2009 - 7:50pm.

there is so much competition in the real estate market. There are so many places charging a cheap fee like the normal 6%. Agents are charging about 3 or 4% which is low.
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Submitted by jimmy choo on August 29, 2009 - 1:35am.

Are percentage-based commission rates rising, falling, or remaining steady in your market area, and what is driving these trends?

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