The Consumer Federation of America on Monday published a report on commissions — here’s what agents and brokers had to say about the findings.
Real estate agents on Tuesday lashed out at a blistering Consumer Federation report released Monday that calls into question transparency around commissions, characterizing the survey of “2,000 Americans” as “misleading” and uninformed.
Agents said the report’s conclusion that agents and brokers purposefully conceal commissions is based on faulty survey methodology by the group that fails to take into account the nuances surrounding how commissions are structured, determined, and when they are shared with consumers.
“I have no idea what a car salesman makes,” agent Ryan Dawson wrote on Inman’s Facebook page. “I have no idea what a medical device salesman makes and I have no clue how much the security system company salesman just made on my purchase. Why is my paycheck the subject of everyone’s business?”
“The seller and I have a contract, bottom line,” he added. “They know what the commission is.”
Dawson’s comment speaks to one of the main criticisms agents had with CFA’s research methodology, which hinged on a survey of 2,000 Americans and an analysis of 263 agent and broker sites and notes taken from phone inquiries with 200 agents.
The survey claimed the majority of everyday Americans without previous buying and selling experience (68 percent) and the majority of Americans with buying or selling experience (56 percent) didn’t know what a “typical” commission fee was.
The survey results — paired with the results of the two analyses, which revealed only 11 sites shared specific commission information and that 96 percent of agents shared their commission fee, but only after “multiple prompts” — are the basis of CFA’s conclusion that agents and brokers weren’t forthcoming about commissions.
However, agents said CFA’s research methodology didn’t consider industry norms and regulations regarding commissions.
“There is no typical commission and I have never taken a listing where the commission was not laid out clearly in writing on the kitchen table,” Kelly James Johnson wrote on Facebook. “This report is misleading and makes me suspect an agenda. Big money is investing billions to try and cram this business into the internet and push out agents.”
Multiple agents said they’d never divulge commission information on a website for fear of being accused of price-fixing, which is the illegal advertisement of a “typical” or “standard” fee.
The CFA estimated a “typical” listing agent commission fee was 5 to 6 percent, minus a “typical” commission split with the buyer’s agent of 2.8 percent.
West and Main managing broker Greg Fischer told Inman CFA’s estimate seemed reasonable, but that agents must explain commissions as a mutable fee that is based on the level of service, the value a buyer’s agent brings to a transaction that warrants a competitive split, and market conditions.
“It can range, and I think the numbers in [CFA’s] report are typical enough to the country,” Fischer said. “However, when we look at our listing agreements and the fees that were negotiated, they’re different.”
“Each listing agreement is a pitch by an individual agent for services for an individual consumer at a specific time in the market,” he added while noting he oversees 750 transactions a year. “Those factors will ultimately determine what they’ll be able to negotiate for that fee.”
If an agent alludes to the existence of a “standard” fee, they can lose their license.
“They can charge whatever they want, and I know this about my marketing and what I offer, but there’s no standard [commission],” Boulder-based Realtor Jennifer Preddy Egbert said as an example of what she tells her clients. “You find yourself saying that a lot.”
“You have to think about being accused of price-fixing,” she added. “You can thank the federal government for that. We are so regulated, and it’s funny because people think we’re all rogue. But we can make one mistake, and we don’t get to have our jobs anymore.”
Beyond overlooking regulations about price-fixing, agents said CFA failed to understand conversations about commissions are best had during an initial buyer or seller consultation — not over the phone.
“I don’t discuss commissions over the phone with someone who is just shopping,” Inman reader Janet Judd shared in the comments. “If that is all that matters to them, then I am not the agent for them.”
“I discuss commissions and how they are paid thoroughly with my buyers at their initial consultation,” Judd added. “Seller commissions and their distributions are discussed at our very first meeting.”
Massachusetts-based agent Bill Gassett reiterated Judd’s sentiments while adding that sharing commission fees on a website or over the phone can hurt agents’ bottom line.
“The reason why you don’t see most agents publicizing commission [on a website or through a general inquiry] is that there’s a segment of the market that is basing their hiring decision on the commission,” Gassett said.
“When you publish what you charge, you might not get in the door with a seller with that mindset and who will eliminate you.”
Although most agents disagreed with CFA’s methodology, some didn’t necessarily disagree with the final conclusion that agents and brokers must do a better job with explaining commissions.
Peer Reputation founder and agent Steven Wynands believes agents need to see conversations about commissions not as a war of the wills, but as an opportunity to educate consumers about the real estate transaction process and the specific value you bring.
“I think agents need to be more open about commissions, and [that openness] could make it easier for people to pay even more,” he said. “When you go into a representation presentation, you have the opportunity to say this is who I am, this is what I’ve done, this is how much I charge, and these are the values I provide.”
“When you go talk to the next person, ask them what they charge and the things they’re doing for that money,” Wynands added. “Are they giving the same level of service and value?”
Beyond agents learning how to craft better commission pitches, Fischer says multiple listing services, Realtor associations, and real estate licensing boards need to take a note from Northwest MLS and open the doors for more transparent commission sharing.
“I think it would be a good thing to move quickly into a place where the brokerages, the MLSs, and the agents all felt like, ‘Ok, we can talk about this in an open way,’ so people can feel more confident about the industry we’ve set up,” he said.
“Because the industry we have set up is really good.”