Like many fee-for-service brokers, Daniel Desmond isn’t afraid to say what he thinks about the traditional, commission-based compensation model for brokers: that it’s baloney.
The broker of record and owner of Forked River, N.J.-based Help-U-Sell Bay Beach Realty, Desmond argues that brokers who charge on a commission basis often squeeze consumers out of thousands of dollars that they shouldn’t have to pay.
Scott Einbinder, a veteran salesperson with Weichert Realtors in Hillsborough, N.J., couldn’t disagree more. Einbinder — who also works as a consultant, providing agent coaching and training — is adamant that commission-based compensation delivers optimal value to homebuyers and sellers.
For weeks, the two outspoken real estate professionals have skirmished on Facebook over how real estate agents should get paid. Now they’re ready to bring their dispute off the Internet and onto the live stage.
Next month, Desmond and Einbinder will face off against each other in a public debate intended to explore the merits of commission and flat-fee compensation for brokers — raising money for the local chapter of Habitat for Humanity in the process.
Both see the event as an opportunity to spark a productive conversation over the way real estate agents are paid — a topic both say many real estate professionals and organizations prefer to avoid.
The debate — to be moderated by a local newspaper, the Asbury Park Press — is scheduled for Thursday, April 25 at the Clarion Hotel in Toms River, N.J. Einbinder said half of the tickets available for the event have already sold.
Einbinder said he challenged Desmond to the debate because his diatribes against commission-based compensation roiled many agents in New Jersey’s Monmouth and Ocean counties. Einbinder said he aims to help put to rest the notion that charging a fee that’s pegged to the price a home sells for isn’t fair to consumers.
He argues that commissions push brokers to secure higher offers, ultimately resulting in maximum gains for sellers. That’s why the compensation model has flourished, he said.
"Discount brokerages have been around for decades," he said. "But the consumer hasn’t embraced that solution because at the end of the day it’s not really about commission; it’s about the sellers net dollar in their pocket."
But Desmond, whose flat-fee brokerage is affiliated with the Help-U-Sell Real Estate franchise, contends that commissions hurt consumers. Why, he asked, should someone who sells a $150,000 home for a certain fee pay three times that fee to sell a $450,000 home?
Labeling that an injustice, Desmond said agents should only charge flat fees. His company does just that.
On a $300,000 home, agents with Help-U-Sell Bay Beach Realty charge sellers a flat fee of $3,950 — $3,550 less than what a commission-based listing agent would receive after splitting half of a 5 percent commission with a buyer’s agent, Desmond said.
If a seller accepts an offer from a buyer who is using a commission-based agent, Help-U-Sell charges a 2.5 percent commission on top of the flat fee in order to provide the buyer’s agent with the compensation he or she expects.
In that scenario, the consumer would pay $11,450 — still $3,550 less than what the consumer would pay in a commission-based deal.
That’s assuming the consumer paid the listing broker a 5 percent commission, or $15,000, split 50-50 between the listing and buyer agents) that would total $15,000. Depending on the market, some listing brokers charge 6 percent or more.
In a best-case scenario for the consumer, a Help-U-Sell broker could sell the home to an unrepresented buyer who isn’t using a broker and save the consumer $11,050.
Desmond argues that Help-U-Sell’s flat-fee model lags in popularity because the commission model is so deeply entrenched in the industry.
"We’re working against an army of people," he said. "The biggest problem we’ve had was trying to overcome the lies that they make up about us," he said of flat-fee brokers.
Defenders of commission-based compensation say an experienced agent’s negotiating skills and knowledge of the local housing market pays off for buyers and sellers at the closing table, justifying their fees. Percentage-based commissions are always negotiable, they note, although consumers aren’t always aware of that fact.
While Desmond and Einbinder may have their differences, they do appear to agree on one thing: the industry is too reluctant to engage in frank and open conversations about compensation.
That the Ocean County Board of Realtors declined to sanction the debate illustrates that aversion, Einbinder said. He believes the board’s decision was overly cautious, since the debate focuses on compensation models, not commission rates.
(Brokers and agents are often reluctant to discuss commission rates amongst themselves because they fear they could be accused of attempting to fix prices. But it would be difficult for anyone to claim that if brokers were to hold a public debate over commission rates, that they were somehow engaged in rate fixing.)
"It was too risky for them to want to get involved," he said. "Which I believe is part of the lack of transparency in the industry."
Those interested in attending the debate may send a reserve request to Einbinder at email@example.com. Tickets are $10 each, and all proceeds from the event will be donated to Northern Ocean Habitat for Humanity, Eindbinder said.