Real Estate Commissions - Dollars and Sense July 27, 2007
If agents use percentages to make the real estate commission seem relatively small, why don’t consumers use actual $$$ to make it look big? Instead of asking “What do you charge?” to which the agent usually answers in a percentage, why don’t consumers ask “What will it cost me?” I don’t know why it is, but “charging 3%” sounds a whole lot less than “paying $24,000″, doesn’t it?
When I’m speaking with agents, we often get into heated discussions about some sacred percentage. I was in a restaurant in Pike Place Market the other day using the salt and pepper shakers to represent two clients. Here’s how the discussion went:
”The salt shaker (Joe) is your very best friend in the whole world. He’s buying a house for $400,000 and you are charging him 3% or $12,000. The pepper shaker (Harry) is your other best friend in the whole world, and he’s buying a house for $800,000 and you think you are going to charge him “the same” at 3%, but that 3% at $24,000 is actually double what you are charging Joe.
Harry wants to pay you $12,000, the same as Joe is paying. You want to charge him 3%, “the same” as Joe is paying.
Obviously at that point, the other agent totally agrees that while he THOUGHT he was charging them “the same” at 3%, he was really charging Harry DOUBLE what he was charging Joe.
By putting names and faces on the facsimile clients, and making them the agent’s best friends, I can make an impact on a thought process. On the one hand the agent wants to bang on the table screaming about their right to a given percentage and how he’s charging his two best friends “the same”. I force him to ”look” into the eyes of his two best friends, and explain to Harry why he’s paying twice as much as Joe.
Then I’m done. I’m not vested in the outcome. Just the process of forcing agents to see things just a little bit differently.
Sphere: Related Content- Posted in : General Real Estate
- Author : ARDELL
I recently closed a transaction where my client was buying a condo in the same building she all ready owned a unit in. The new condo...
Comments»
I think of these comparisons temporally. a 200K house in 1997 is about a 600K house in 2007. Are you really offering triple the value that you did 10 years ago?
Biliruben,
What I think is relevant a whole lot more than 1997 pricings is that agents themselves have to earn the income that they need to be able to afford a house. So agents in CA need to charge more than agents in Indiana, don’t you think?
If I could buy a house in 1997 for $200,000 I would need to make 4 times that. If it costs me $600,000 to buy a house today, then I need to make 4 times that.
Isn’t that how it works?
What I think is relevant a whole lot more than 1997 pricings is that agents themselves have to earn the income that they need to be able to afford a house.
Not really. They could rent. Buying a house isn’t a right.
“So agents in CA need to charge more than agents in Indiana, don’t you think?”
The median income for a CA RE agent adjusted for local inflation and business costs is about the same as Inianna and across the country.
Cheers,
Michael P. Lindekugel
Financial Analyst
RE/MAX Commercial
Team Reba - RE/MAX Metro Realty, Inc
Michael,
If fees were flat fees, the dollar amount of the flat fee would still have to be higher in areas where housing is more expensive. If fees were hourly, the hourly fees would have to be higher in areas where housing is more expensive.
All industries have a higher salary for their NYC office than their Buloxi office.
If you are not using % of home as a fee basis, then there has to be a cost of living adjustment per area, if the cost of housing is significantly different.
Alan,
That’s like telling a nun she could be a prostitute on the side to get some extra money
LOL, I could be Sister Agent and the convent could house and feed me. I like that one.
OK, back to the point.
A % basis alone, regardless of price, is not the best method of establishing commissions, unless you have a cap point.
Charging everyone the same percentage does not equal charging everyone “the same”. Not saying everyone should be the exact same amount, but % is not the best method when applied across the board regardless of circumstances and price.
This is the reason why so many consumers want an alternate business plan. If I pay 3% on the listing side for a $1M (Zwillow) home, then I must pay extra for staging and other selling services I am not a happy consumer. If a Realtor charged me on a menu basis (with out regard to whether or not the home sold) the Realtor would be a lot better off. Consumers would be much more thoughtfull about pricing and home prep if they had some skin in the game.
Homes with a lower price point would be paying a higher % of their selling price for the same services, but they would be paying their fair share of the cost of selling their home.
Where Realtors will have issues is with the RedFin client who wants to see the home. They are cost shifting the expense of showing to the listing Realtor. Maybe the seller should hire a ‘house sitter’ to escort prospective buyers simply as a security measure and no more.
I think I’ll try that Monday, Ardell. Go into my boss and tell him he has to triple my salary because the cost of housing has gone through the roof.
There is a fairly substantial barrier to entering my field (about 25 years of education and 5 years of experience, as well as certain key skills), and I can’t get away with that. I’m not saying you don’t have skills Ardell, don’t get me wrong.
The only people that can get away with that are rock stars, baseball players and Realtors. The barrier to entry for Realtors is what again?
I think you can put 2 and 2 together and determine where the animosity towards Realtors comes from, Ardell.
That kind of absurdest thinking, beyond all bounds of reasonable economic rules of competition is why the NAR is being sued, why they will eventually lose, and why the industry is in deep need of an overhaul.
Biliruben,
When I started working the President of the Bank started in the mail room. I agree that many bought into the concept that 25 years of education was going to get them a lot forther than it did. They got duped.
That’s no reason to take it out on other people.
Menu doesn’t work Nell. Many have tried it. I’ve had more success with flat fees and it works farily well.
I just got home from staging my next listing. This one’s a losing proposition as I’ve been working on it for almost three months and it’s not even on market yet. But it’s the exception to the rule.
I’ve spent as much as $10,000 marketing a high end listing and worked disproportionately harder to get it to closing. The flat fee thing is a non-starter for those situations. I figure anyone so fixated on the commission I earn that they don’t “get” that I’ll invariably net them more at closing deserves what they get; the pain of netting less at closing mitigated only by the knowledge that they didn’t pay a commission.
You want lower commissions? Lobby your state legislator to significantly raise the licensing standards for agents. Raise it high enough to discourage part-timers and “hobby agents”. I’ll go as far as to say that half the agents in this state are grossly incompetent and lack an effective grasp of their duties where the Law of Agency is concerned. Fewer agents with a higher standard doing more transactions and wasting less time prospecting is a good thing for consumers and agents. The brokers, NAR and the MLS won’t like it one bit but they’re just parasites on the folks in the trenches who *really* make transactions happen.
You seem to have completely missed my point, Ardell.
It’s not about you or me. It’s about barriers to competition and deceptive fee structures that those barriers allow to exist.
You seem to understand the latter, but want to ignore the former, which is the root cause.
Let’s say you set fixed dollar amounts for fees. Let’s just work through the logic on that. (Just for starters, because you have to start somewhere and modify from there.)
The median price for a home here in Richmond is about $270,000. Let’s take 3% of that, $8100, and use that as the fixed fee. That’s great for anyone that sells a house for more, but that means the % on a $135,000 house is 6%. And that’s for ONE side of the transaction!
There is a reason why the percentage system is used for sales positions in any industry. It is the incentive for selling a product at the highest price possible.
On a similar, but different, note — we all know what we’re worth. If you don’t like my prices, don’t use my services. There is always the option of FSBO. There’s no shame in that. Some people use a lawn service, and some people prefer not to pay someone to cut their grass. It’s okay either way. BUT, don’t expect me to work for free — I don’t ask you to give up part of your paycheck.
JD Blackwell,
The list of “parasites” is growing and growing. There seems to be no end to the number of companies springing up to sell leads.
When we scratch our heads and say, why haven’t technological advances that make this job much easier trickled down to consumer savings, the answer lies there. More and more money feeding the lead generating machine. Ulitmately those dollars are tied to the commission.
biliruben,
Originally you mentioned barriers to entry vs. barriers to competition. Can you give an example of a deceptive practice and barrier to competition?
I think I know what you mean, as I think you are talking about buyers and not sellers. But I want to make sure. There are fewer deceptions and barriers to competition for sellers. Since the whole process renders a buyer fairly powerless, I assume you are talking about buyer consumers vs. seller consumers. But before I go there, can you confirm that?
Nathan,
The biggest issue is not on the seller side of the fence. The listing side of the transaction has plenty of communication and competition. No big arguments on how listing agents are paid or how sellers are treated in commission discussions.
98% of the deceptive practices lie on the buyer side of the equation. I see it go from bad to worse. A seller understands that they offer half the fee to the buyer agent. It’s when the buyer doesn’t have an agent that the shit hits the fan. It’s when the buyer isn’t permitted to negotiate the commission set aside by the seller, or even talk about it, that the shit hits the fan. The rest of the manure is in the referral fee structure.
This post is about two buyers…how did you turn that into a conversation about sellers?…everyone does…and therein lies the problem.
Everyone refuses to give the buyer a voice when it comes to commissions. It’s none of their damn business is usually the sentiment expressed. Want to talk about buyers and what commission they pay in the structure? We can talk. Want to pretend they pay nothing and it’s none of their business what their agent is being paid (by the seller)…we can’t talk.
Yes, I was thinking primarily of buyers.
Nathan,
Let’s start at my agreeing with you. Now let’s take YOUR sentence “There is a reason why the percentage system is used for sales positions in any industry. It is the incentive for selling a product at the highest price possible.” . NOW tell me why a buyer should have an agent, if that is the underlying truth?
So from a buyer’s standpoint, which is what this post is about, you would have to agree with me that a flat fee makes more sense, right? If you feel higher price equals sound basis for % based fees, then you would have to agree that flat fee is the only method that makes sense on the buy side, since the objective is lower price.
biliruben,
As you can see from the agent comments and my discussion with them, it’s nearly impossible to have the buyer side discussion with agents. It is why they don’t understand why the existence of Redfin is not just “another discounter” entering the field.
They don’t understand that Redfin’s existence equals the buyer having a voice. Until they “get” that, it’s hard to expand the conversation into the buyer’s right to not be deceived.
Buyer’s don’t help matters any by calling the listing agents direct, and Redfin is doing more to hinder the progress of buyer rights, than to expand those rights. As did EBA’s before them.
Both the EBAs (Exclusive Buyer’s Agents) and anyone who fostered advancements of buyer agency and buyer voice, such as Redfin, play the idea only to the point where they become profitable…or not. It’s why I end up being John the Baptist. Redfin and EBA’s can’t foster positive changes in the industry by pretending to be Jesus, and then not being Jesus. All that makes them is another Jim Jones, who dupes the buying public just like everyone else, and breaches the public trust aspect, just like everyone else.
Let’s see if any of the agents up there come back to talk about the buyer side of the commission structure, except to say that only the seller is permitted to speak about commissions.
It’s why I use salt and pepper shakers to represent two buyers, any time I get a chance to disucuss buyer fees with agents. Little light bulbs go on, but until the buyers themselves understand the structure, and how to work within it vs. shooting themselves in the foot out the gate…it’s pretty much a hopeless battle.
Every time a buyer calls from the sign to see a house, they put another nail into the coffin of this mostly dead issue. Redfin encouraging more and more buyers to call the listing agent, is not the way to win this battle. I’d call it a war, but when you have 98% of the forces in play on the seller side of the equation, winning a war is doomed from the outset. Winning small battles is all we can hope for.
But buyers themselves don’t demand representation for less. They cut it down to no or limited service to attain savings, when they should be demanding full service for less, the way most sellers do.
Buyers can’t get on equal ground with sellers, until they are willing to have the commission discussion with agents the way sellers do. Many don’t want to go to that trouble. They just want to be duped into something lower and lesser, rather than best for less. Sellers are smarter than that, by and large.
Having access to property helps, but not until buyers refuse to call the fox to get into the hen house. So Redfin does more harm than good by saying “Call the fox to get inside the hen house, and then come here and save some money.” Once you’ve been in the hen house with the fox, you’re paying less because you got less for the money, not because you negotiated well on your behalf.
Getting nothing for less is easy. Getting it all for less is the better option, and sellers know how to do that a whole lot better than buyers…so far.
Just discussing the Realtor fee for selling here, the fee for the buyer’s agent is for another day…
“Menu doesn’t work Nell. Many have tried it. I’ve had more success with flat fees and it works farily well.”
I think a flat fee on the sell side is much better than the %. I would even go so far as to say that at least a part of that fee should be non-refundable if the client takes the house off the market. Realtors should be paid for their efforts. Some consumers, in effect, construct their own menu paying for services to get their home ready to market because many % Realtors don’t offer (or are ill equipped) to stage. If RedFin makes a significant market penetration on the buy side a flat fee Realtor should take that into consideration.
JD Blackwell’s description of the amount of effort it took to get a high end house to closing may well be true, however, if you know your area and are experienced in that market then you should know what, in general, to expect and price accordingly. Many businesses produce a client specific product and must quote a fixed sum without knowing how difficult it will be to complete that project for that specific client. With experience you know what it usually takes, you factor in a few $ based on your assessment of the client personality, and go with it. There is no reason why a flat fee should be the same for every home/client.
Nell,
OK…that another day never seems to come though
The key to setting commissions is about the people involved, not the work. That is why menu doesn’t work.
Seller doesn’t need to sell and may not equals higher fee.
Seller moved already and is not considering renting and sale is the only option equals lower fee.
The only time a house takes a very long time to sell or doesn’t sell at all, it’s about the seller, not the house.
Nell,
Looks like you agree with the personality thing, I just wanted to state that for the readers generally.
Sellers have all the options in the world. For sellers it’s pretty simple. A set percentage with a cap. Same way agents pay their brokers.
The more an agent makes, the lower the Broker’s percentage, and usually there’s an annual cap to how much an agent will pay the broker.
Same setup for sellers and agents would work perfectly. It’s a no brainer. If agents think it works for them when paying their Broker, they should agree it is a fair method for sellers as well. But they usually say “Oh, that’s different!”…It ain’t different. There is a point when you are paying too much to your broker, so you cap it. There’s a point where the seller is paying too much because of sale price, so you cap it. Pretty simple stuff.
That’s like telling a nun she could be a prostitute on the side to get some extra money
I’m afraid I don’t understand your analogy. Would you mind elaborating?
You said people who sell houses for a living should not include in their income goals, a level of income needed to buy a house for themselves.
Telling all agents they should set their income bar at less than they need to buy a house for themselves, is like telling a shoe salesman he can go barefoot, and set his income standard at less than an amount needed to buy shoes for himself.
It simply does not compute. In fact many consumers would not want to buy a house with an agent who never owned a house. An agent who has never bought or sold a house, would have a huge gap as to first hand knowledge of the basic info needed to assist others in buying and selling homes.
It would be like someone making money telling others how to deal with their children, who never had children. Oh yeah. Oprah does that and she never had children of her own. I always wondered about that
Just not a practical proposition.
Ardell, Just in case you ever wondered, if you were doing business in my community I would hire you for a fixed fee and I would expect to rebate some of your fee if I took the house off the market. Fair is fair.
I want a Realtor who can price my home realistically, help me present it at it’s best, will market it in the form potential buyers are most likely to notice it, and will negotiate smartly… for a reasonable charge.
We expect to put our home on the market next year, discussed it with one Realtor. She says she stages but I haven’t seen any training that supports that skill. My discussions with her and others indicate that all the firms are full fee % houses, period. Maybe next year things will change.
I just bought some cute staging things today. In fact I was buying them when you were writing this
I was thinking of doing a post of my finds.
The training for staging doesn’t help if you don’t have an eye for it. I can’t fully stage a vacant, or let’s say I don’t. Bringing in sofas and furniture is not what I do, nor are agents supposed to go there. But if someone has decent furniture and the place is in decent shape, the Accredited Staging Professional training is very helpful.
Stagers have a three day course and agents are there for the first two. I think the third day is more about the business of staging. The trainer and owner of the ASP program was a good listing agent for many years, so there is much overlap between staging and listing a house. Many of these things we could always do, the class just makes you bold enough to start moving people’s stuff around.
A good agent can stage better than a stager sometimes. It’s about accenting the homes strengths and downplaying the weaknesses. Stagers who just think they are decorating don’t always know what the home’s qualities are, and use a fireplace as a focal point instead of the million dollar view.
Saw a staged home where everything was positioned away from the view. The view is worth a whole lot more than the fireplace! Make IT the focal point when selling.
Highlighting high ceilings is another biggee. Height sells for more and often people don’t notice that extra height if you don’t make them look up by placing things high. That’s why we almost always put things on top of the kitchen cabinets, if possible.
Ooops…better write that post on staging…this comment is turning into a post
You said people who sell houses for a living should not include in their income goals, a level of income needed to buy a house for themselves.
That is certainly not what I intended to say. A more accurate interpretations would be that real estate agents are not entitled to higher salaries just because home prices are higher.
Setting goals is a very good thing to do (especially in sales). There is absolutely nothing wrong with an agent who works harder or smarter to earn more money. But that ambition has nothing to do with home prices.
Biliruben,
I was sent this link by someone who said it reminded them of me. I wanted to share it with you. I have been singing and dancing my way through it all, but is that bad?
Good Morning!
I look at houses. I spend a lot of time with houses so that I know how a house works, or doesn’t, as the case may be. People say location, location, location as though they have some insight. You know who those people are, they are Real Estate agents. It makes things simple. Selling a house is not simple.
Listing a house for a price, making it look the part, and promoting it to the buying public are all things Real Estate agents or sellers have control over. Buyers have dreams, wants, ambitions, and these things represent intangibles.
You’re proposing I charge less based on what the price is. That’s fine. redfin does it every day. They do nothing but collect a fee. If I could do nothing but collect a fee for a deal some one brings me fine.
The thing is, I can’t do that. I’m a Real Estate agent licensed in the State of Washington. It’s presumed that I have a level of competency that makes me liable for the transactions I write.
I have no plausible deniablility if I go to the house with the buyer, write the transaction, attend the inspection, help with the lender, and go to escrow. I’m on the hook, or more accurately my Broker is.
A second thing is that in many cases a $400K buyer is more work than an $800K buyer. Many times a $400K deal has more liability based on condition. Many times the pool of product on any given day can be lower or more hotly pursued than the $800K. There again the $800K buyer is less likely to climb into my Honda to look at a $800K product. My presentation is different.
Lastly, the idea that the commission system is some how related to sales is a crock. I’m not selling anything. I have nothing to sell. I’m not in the computer business, or shoes, or siding. I’m in the Real Estate business where if the wiring catches fire some one asks me what went wrong.
My insurance agent isn’t going back and forth between my wife and I about what color the bathroom is. My insurance agent flops a bunch of papers onto a desk and asks me to choose. Are you, or any one, really comparing houses to Insurance Policies?
Alan,
There is a max to the number of people an agent can represent in a year’s time, and do the job well. So the answer can’t be that you double the number of people to double your income or even that you keep increasing the number of people by 10% to get a 10% raise. A bank teller today probably serves the same number of people today as they did back in 1972. So more people served, in any field, cannot be the basis for income increase.
It usually works like this. First year 12 people equals 6 sales. Second year 18 people equals 12 sales. Third year 24 people equals 16 sales. The goal is to get to 24 - 30 sales. In a hot market and with some experience you can get to 30 people equals 26 sales. In a slow market, you fall back, as those same 30 people now equal fewer sales.
Once you achieve the max number of people you can serve well, usually year 3-5, you can no longer increase the number of people you see and serve in a year’s time, without increasing your expenses dramatically, by hiring staff.
It’s been a long time since we have seen expired listings and buyers who decide not to buy. In a normal market, everyone who lists their house does not sell, and everyone who thinks about buying does not buy.
So if we are entering a phase with fewer sales, even though prices are not going down, the work load to achieve the same income increases. The average agent producing 24 to 30 sales, works 60 hours a week or more. So increasing the number of people, can’t be the answer.
There is a huge difference between a client and a lead. A client deserves full attention pretty much 24/7. We can’t predict when an offer will come in or when the right house comes on market. So on any given day you must have the time your clients need, whether they need it that day or not.
Yes, there are years when most potential clients equal a sale and prices increase dramatically. But over time the years where only 2/3rds of the work produces a paycheck, and prices stay flat or go down, far outweigh the years when we see double digit price increases and all houses listed selling.
To simply look at home prices as the one and only factor is not a realistic model. I hope that clarifies how the career functions basically.
My starting salary in 1972 was $4,800 a year and grew to $36,000 a year with benefits and virtually no unreimbursed business expenses by 1990. One Company, many promotions. It took me 3 years in real estate to get to that same $36,000, except I had costs and no benefits and increased my work week from 37.5 to 60 hours.
You tell me. What should my income be today, gross, without benefits?
David,
I absolutely loved this phrase “making it look the part”. Those of us who assist in that endeavor clearly earn every penny. But I think you will agree that in the last five years, way too many people got into the business of putting up a sign and opening doors and saying “do you want to make an offer on this one?”
Redfin equals the equivalent of the agent who got into the business during a hot market, where houses could sell quickly with no prep, and buyers had to decide in an hour. Many of the alternative models emulate the lowest common denominator, and can easily replace the lowest common denominator.
Unfortunately they are jumping in just as the pendulum is swinging.
I agree with most of what you say. I agree that $400,000 sales are much harder when representing a buyer client, as we are looking for a needle in a haystack most of the time. Finding a good one among the few that become available is much harder than finding a good $800,000 house. But conversely we reap those advantages when selling a $400,000 house that is more likely to fly off the shelf. So it balances out, don’t you think?
Representing a buyer who wants a $400,000 house, is a lot harder than representing a seller who is selling a $400,000 house. If you can balance 6 buyers to 6 sellers…evens out.
I think consumers want to pay their way, they just don’t want there to be no cap. Capping will not cost us much, if anything. We don’t sell as many really high priced homes as we sell under a million. Most of us anyway. So saying there should be a cap somewhere, should be as simple as saying the amount we pay our Broker must cap somewhere. Can you agree with that?
If the average commission is $8,000, than maybe the cap is $12,000 after expenses. You place the cap wherever you want. How often to we represent someone up at that cap level? Rarely. So if it makes people happy to know there is a cap…let’s set one. I have, though there are times when that cap is not sufficient, even though it is high. So I’m still adjusting.
If every agent simply added that aspect, what is fair for this client instead of simply applying a percentage across the board, people would be happier. Sometimes I match Redfin, sometimes I match your model, many times I’m in the middle some where. All depends on the client…and yes, I wholeheartedly agree that a couple is often double the work of a single person. Lets charge two clients more than one, even though it is still one house
You tell me. What should my income be today, gross, without benefits?
Your income should be what the market will bear — just like everyone else.
Alan,
Now you are confusing me.
You said: “…real estate agents are not entitled to higher salaries just because home prices are higher.”
Now you are saying it’s fine to be entitled to higher salary just because home prices are higher. That IS what the market will bear for the 24 to 30 people I represent in a year’s time. Not hard to find 24-30 people willing to pay based on sale price.
Your two statements seem to be in conflict. What am I missing? Do you really see a day in my lifetime when I can’t find 2-3 people a month willing to pay based on sale price?
Ardell, you have a lot more drive on this subject than I do! I don’t know why agents continue to say they deserve that 3% EVERY time without regard to the home price. While I don’t do a flat rate I do have lower commissions which have been very fair to my clients. I will continue to track housing prices and the trends of my clients to ensure my fees remain fair.
Getting paid for cost of living is only logical. If my husband were to transfer to a different state/area, his income would adjust accordingly - why shouldn’t mine? Commission % actually makes a lot of sense in this scenario as you will obviously get paid more if the home prices are higher or less if you are living in an area with lower home values.
The other important issue in this thread was a comment I saw that the state needs higher standards for real estate licensing. Perhaps they should be requiring actual schooling addressing all areas of real estate, not just the follow the law part. Don’t get me wrong, the follow the law part is very important but there are so many other areas that new agents need training for too. I think everyone would have more confidence in our industry (me included) if there were standard training for all agents or real required education along with an apprenticeship or internship program. Obviously this would not at all help to lower commission structures but I think it would be extremely beneficial to consumers as well as other agents.
Jennifer
Some agents really have an average price range. Agents who work a specific neighborhood with no lakes in Florida, pretty much fall into one price range where percentage can work very well. Arizona, same, and many other parts of the Country.
Here in the Seattle Area, you can be selling a condo in Bothell for less than $200,000 one day and a view home for millions the next day.
It is the nature of the real estate that gives me the drive on this topic. For areas with more even price factors, it’s not a big issue.
Thanks for the link, Ardell. I don’t think anyone who knows me would accuse me of not dancing and singing enough myself. Likely the opposite! I have no idea what that has to do with anti-competitive behavior, the lack of a functioning market for RE services and deceptive pricing models, but it’s certainly a good lesson to hear and the way that I try very hard to live.
Back on topic,ust a few facts for you to ponder:
Median family income in 1997 = $55,100
Median family income in 2007 = $75,000
Commission an agent received for selling the median priced home in Seattle, if receiving 3%,
so in 1997 = $179,500*0.03=$5,385, so an agent with 15 or 20 buys and sells a year is bringing in around $100,000 give or take, and after kicking up a percentage to their broker, is making about the median family income.
but in 2007 = $470,000*0.03=$14,100, so under the same circumstances as above, the agent is making well over twice the median family income.
I’ll leave you to connect the dots.
Biliruben,
You said, “There is a fairly substantial barrier to entering my field (about 25 years of education and 5 years of experience, as well as certain key skills)”.
I often hear resentment toward real estate agents because there is bascially no education requirement. The “hoax” video is to remind people that not all people who achieve success, got there by following the bag of money through life, as indicated in the video.
I do believe a lot of resentment toward agents lies in that film.
If the education requirement of varying fields was not at issue, why did you bring it up?
So some agents do a lot better than the median. What’s the point? They have no benefits whatsoever, like median salaried people do. No paid vacation. No paid sick days. Why do they have to be at or below median? If you divide the number of homes sold by the number of licensees, you don’t get 20 sales per. So those who sell 20 homes should be higher than the median, shouldn’t they?
I certainly haven’t followed the money, and I have no resentment. I was making more in 1989 than I was in 1999 because I chose to not follow the money.
I bring up barriers to entry such as education for RE agents because in a competitive market place with few barriers to entry you wouldn’t expect to see a near tripling of compensation in 10 years like we are seeing in RE. There is a market imbalance.
There isn’t a healthy, functioning market for your services.
Part of the reason has to do with the MLS structure and how it limits access to a the data, which is a vital tool for competing business models.
Part of it is what you discussed: the inability of a buyer to have an obvious outlet to discuss the hidden fee for the buyers agent that’s essentially tacked on to the price of the home.
Part of it is any easy way to compare agents and pay quality experienced agents such as yourself a premium over newer, less-qualified agents.
There are probably more reasons as well that the market is broken.
You seem to get the last 2, but you don’t seem to be acknowledging the existence of the 1st.
Ardell,
I think Alan’s point can be summarized by looking at how things work in another field. Since you brought the innocent shoe salesman into the argument, consider a similar situation: a salesman working at Nordstrom whose job is to fit people for and sell them Armani suits.
Is their salary determined by the question “how much do they need to make in order to afford to buy their own Armani suits?”
Actually Tim, I am told the answer to that is yes. Our friend in the retail business tells us that selling mens suits at Nortstroms is a lucrative job and provides an income well above what you would expect. He says not to sell shoes there though, as that is different. I’m not in that industry, so I take his word for it.
He said you have to start selling shirts and ties, but those who sell suits make way more than those who sell shoes.
Same as real estate, I guess. After 10 years, someone makes higher than the median and first year they don’t.
I think the main difference is in 1997 when median was more sufficient, there were fewer licensees. I say licensees and not agents, as many home buyers and sellers get a license to do so for themselves. Also in 1997 it was much more likely that each sale represented 3% to an agent than it does in 2007. That’s where his figures are off.
I get all three, Biliruben. I just don’t have all the answers. I absolutely agree with Glenn Kelman that it’s broken. It’s how to fix it that is the problem, and none of the proposed solutions is best long term.
I contunue to study consumers more than the insiders in the industry, looking for those answers. I even support the half answers. Every day I see this barrier, the one where a buyer goes to an Open House and is treated with huge disrespect and anger for wanting to talk about the buyer agent fee. The really broke part is the part where the listing agent wants to keep the fee set aside by the seller to pay the buyer’s agent, when there is no buyer’s agent.
It’s a brick wall, and I see it more than anyone, I think. I really don’t understand why sellers and listing agents don’t understand why it isn’t fair to put it into the price and then keep it when the buyer doesn’t use it for its intended purpose.
I get it, but legally the buyer has no recourse under the current system. They are not privy to what the listing agent gets, so even if the buyer takes away 3%, the agent can still walk off with the 3% fee.
Getting 3% off the finally negotatiated sale price is near impossible under the current structure. Redfin found a short term answer, but agents are quickly filling that loophole by reducing the commission if the agent isn’t present when the buyer sees the house.
The only answer is for agents to understand, and sellers to understand, that the 3% is a set aside for buyer representation, and is included in the price. No representation, fee comes out of price or goes to buyer. But not enough see it that way yet to make the change. Hard to say don’t take it, even though you “can”. It’s an uphill battle.
Limiting access to data isn’t really a problem at all. Not here anyway. NYC where there is no MLS, yes. But here, not really. Not in a way that isn’t readily sovable if someone cared enough to do so.
The real topic is that some people need guidance as to price, and many do not see the home’s weaknesses the way an agent does, or is supposed to…until it’s time to sell it when those weaknesses become painfully evident.
The 3% is for that type of guidance, but it stays the same whether someone wants or needs that. It also stays the same whether or not the agent can or does provide that guidance. To eliminate these guidances and suggest that an agent doesn’t need to see the house or offer these guidances to most people, is a step in the wrong direction.
It’s like paying a CPA fee to someone, when you do your own taxes. The answer isn’t for everyone to have to do their own taxes. Some people who do their own taxes, may pay more than if they had it prepared by a professional. Some home buyers will buy the house no one else wanted, and pay more for it, if representation becomes a thing of the past.
I still think the CPA model is the best anology for real estate. The parts that are worth the money to hire a professional are the “artform” parts. The reading between the lines parts. Not the data transfer parts.
Except you need a CPA annually if not more. They have an incentive to give you a fair price for their services, because if they don’t you go to a new CPA next year.
With houses, it could be 20 or 30 years between purchases. What’s the incentive not to screw you, take the 20K even if the transaction was quick and easy and they only did enough work for 4K, and move on to the next sucker? Someone like you you prices by the job seems to be the exception, Ardell.
Recommendations to friends and such are only a modest incentive. I’ve actively recommended the agent who helped me with my purchase, but she’s only gotten one sale through me, and that was more chore than lucrative deal.
Biliruben, my business is completely referral. If I “screw” someone on a mortgage, I just screwed myself from several transactions. The incentive “not to screw” is huge if you’re a referral based person in this industry. If I charged too much or provided terrible service to someone who was referred to me, not only will I not receive a referral from that person, they’ll go back to their buddy who recommended me and tell them how unhappy they are–costing me a huge source of business.
This is my point on why consumers shouldn’t randomly call LOs to find one to work with or use a stranger who has sent you a piece of mail promising low rates. Odds are, they don’t have a referral based business and the LO’s busines model is “transactional” vs. “relationship”. Transactional sales people do not see the incentive to develop a relationship with the client…another one will be making their phone ring chasing that fictional rate.
This holds true for real estate agents, too (transactional vs relationship).
Can’t disagree there, Rhonda.
I’ll clarify my point.
Income is in America is not based on how much money you need but on how much value you can create and how much of that created value you can negotiate for yourself.
High home prices do not entitle real estate agents to higher salaries. The negotiation skills (some of the group negotiation) used by real estate agents can allow them to earn more income in higher priced markets, but it is not a ‘right’ or ‘entitlement’.
You said that there are more agents today. The reason for that is clear. There has been more earning potential per amount of work in recent years. That, combined with the relatively low barrier to entry to the field, has attracted more people to the field.
Do you know why medical doctors earn so much? Because new medical schools have not been opened as the population has grown. Even if you are willing to spend the 6-8 years of school and residency, the opportunity to invest that time is under very strong competition. That provides a high barrier of entry and results in high salaries (although those salaries have not been as high in recent years due to collective bargaining from insurance companies).
What is the barrier to entry for a real estate license?