Some do, but they are few and far between. They are typically flat-fee agents and there is no guarantee of results. As a rule, people prefer to pay when a sale occurs, although some will take a chance on the flat fee arranagement; it is still not exactly "by the hour."

There is only one simple answer to this: Realtors are in sales, thus, they get paid a commission.

I am a Realtor myself, and though I shouldn't be saying this, this business is a numbers game, that's it. Our 3% is completely justified as this is a tremendously difficult business. The problem is that the home buyers or sellers don't see this. Once you get a listing, or get into escrow, that is the easy part. The hard part is the countless hours spent on finding new leads and converting them into clients. This is why we make a 3% commission. 90% of our work is not helping the client, it's finding them.

.......as do I. Regards.

Let it go.,
People can read for themselves what is here and decide who said what. I have faith in them and their ability to do so.

Good luck

Dunes, I agree this conversation is not going anywhere. To clarify, my original post was in response to the poster's question and how he correlates REA's to CPA'a and Attorneys. Given that REA's generally do not have the same education or licensing requirements, I suggested an example of $100 per hour. Not to appear greedy, but in direct response to the content of Hawkeye's question.

With regards to the question on profession...yes, your opinion is more valid if you are a member of a certain profession. I do not provide legal advice, nor do I provide tax or religious advice...I only provide real estate advice.

The manipulation of my statements, such as your paraphrased, "only Agents know about Real Estate", is completely misleading much too broad a statement. Although that was your quote, I doubt you would disagree. In addressing how some buyers and sellers have the idea or plan to reinvent how real estate is currently transacted, until they learn more about the structure of the business from the inside and discover how much the current processes are entrenched, the practical application of the ideas will not come to be.

It is not that buyers and sellers do not know about real estate. There is more information available than any other time and the public is more aware of the practices, disclosures, agreements, etc., which is fantastic because a well-informed client is the best client to have, in my opinion. But for someone on the outside to suggest fundamental changes to the industry, without having first-hand experience, is for the most part, not a good idea.

Michael

I never said Agents were Greedy, not here or anywhere in this Forum at any time.

I was talking about contributing to the perceptionsome of the the Public has (and said right or wrong) that Agents are greedy and having this discussion with $100/hr comments IMO could possibly add to that.


I've paid more than 6% Commission a number of times and have never said it wasn't worth. The
Commissions are negotiable by Law and well all know some agents are already doing things for less than 5-6%. There are flat fee services and other options already in place. I've no where in this thread or forum suggested any one was better than the other and have in fact referred a number of people who came here to full-service agents because it is my opinion they are excellent agents based on their comments ect..
I always tell people to interview interview interview......

This....."You've got a chip on your shoulder the size of Mt Rushmore and until you become licensed and learn about the industry away from an arm's length view, your opinions hold little water." is just a silly and immature thing to say. It is totally untrue and you based it on things I have never said.

This...
"By the way, may I ask your profession?" May I ask what Professions are on your approved list of Professions? If I wash dishes is my opinion worthless? Do you refuse to sell homes to people based on their Profession? My opinion is more valid if I'm a member of what Profession.

ONCE AGAIN.....My point was that in this market Public perception is a very important factor. Why add ammo to those who already are feeling (again, right or wrong) that Agents are Greedy.

I'm questioning the time and place for this discussion...........not attacking Agents, the industry, or saying anybody is worth whatever.......

It's an open Forum and you can say whatever you want and talk all you want about charging $100/hr to show a property. I just questioning the wisdom of doing it here.

But please do so if you wish!

BTW...I'm retired from two Professions...I was an Episcopal Priest (22 years) and then was a Psychologist who worked with people who have Autism (15 years). I have been buying and selling for over 40 years. I have always used a Full Service Agents. If the point you were making to me with the silly Chip on my shoulder statement was that only Agents know about Real Estate then I hope you've shared that opinion with any investors you've worked with as I'm sure they would love to discuss it with you.

Dunes: You simply cannot state RE Agents are greedy when it is the public who dictates and offers to pay for the services. The fact of the matter is, we ARE entrenched in the current real estate transaction methodology, so much so that most who are not active licensed agents will not understand.

The MLS, for example, is organized by Realtors, paid for by Realtors and populated with listings by Realtors. Your notion that people as a group will find a way to complete the buying/selling process if they as a group make a decision to do so is not realistic. It is not often that people as a group not only make major decisions themselves, but carry out the implementation, without having laws and governmental regulations in place, which is what you are possibly suggesting.

If it is your belief that RE agents are not worth the hypothetical 100/hr or the very real 5-6% commission, then what type of agents would there be if the fee was minimum wage? Don't you think litigation would go through the roof due to poor representation?

"Greedy RE Agents"?...You've got a chip on your shoulder the size of Mt Rushmore and until you become licensed and learn about the industry away from an arm's length view, your opinions hold little water.

By the way, may I ask your profession?

Michael I did not state this..

"You state that it's "foolish" to believe that the public will not soon decide to use other ways to broker real property without licensed agents."

I said "Same with Services and the value is determined by the people who pay. It's foolish to think people won't find other ways to complete the process of buying/selling if they as a group decide things have gotten re dik u lous!

Which could mean Flat Fee service..FSBO..Aliens...Magic Rocks who knows, industries and people adapt all the time. In this economy/market do not feel so confident in the "WE are entrenched" philosophy would be my recommendation.

I'm not here in this thread to debate (The public needs us) I'm here to express my opinion that YOU NEED THE PUBLIC............

The point of my comment was...
In this market this is a very Re dik u lous discussion to have in a public Forum IMHO as Public perception of the RE Industry far outweighs what Agents think their value is at this time.
and
It's not about you should or shouldn't, it's right or wrong, you are are you aren't, it is about the Time and Place for this discussion.

$100/hr? The public will surely consider that and I bet they come to the conclusion.....Greedy RE Agents.

Dunes, you are absolutely right that the public perception, in this case, the demand for services, dictates how much the public is willing to pay for services. Currently, the public is willing to pay 5-6% of the purchase price for residential real estate.

You state that it's "foolish" to believe that the public will not soon decide to use other ways to broker real property without licensed agents. Classified ads, the internet, Craigslist...they are all out there for anyone to use, but over 80% of for sale by owners are eventually represented by agents. Why? Because the owners are unable to sell the house themselves.

Our industry practices are so entrenched in our culture, partly from regulations and laws initiated by the public to protect the public, that having a fundamental shift to a "do it yourself" mentality will not be feasible in the near future.

Because they actually want people to do business with them.....

Remember all the times you said or heard "A house is only worth what someone will pay for it"?

Same with Services and the value is determined by the people who pay. It's foolish to think people won't find other ways to complete the process of buying/selling if they as a group decide things have gotten re dik u lous!

What about the "Sellers pay the Commission" come on to attract buyers when you turn to the hourly wage?

$100 per hour? Get Real!!!!!!! In this market this is a very Re dik u lous discussion to have in a public Forum IMHO as Public perception of the RE Industry far outweighs what Agents think their value is at this time.

Let's reinforce the perception RE Agents are greedy!!!!! YEA!!!!!!!!!

It's not about you should or shouldn't, it's right or wrong, you are are you aren't, it is about the Time and Place for this discussion.

$100/hr? The public will surely consider that and I bet they come to the conclusion.....Greedy RE Agents.

Wanna Bet?

Here you go- the 3% does not all go to the agent unless they own the company and are not associated with a National Box . The Box brand brokerages charge the agent everthing under the sun to do their business and take a percentage of the gross. The Box Co. also charge the agent a National Fee on every sale. In addition , self employment tax, all expenses from cell phones, internet, insurance, licenses, board fees, MLS fees, advertising, gasoline, etc.- not to mention personal expenses that all people have. In addition, can you phone your CPA @ 6 AM or 11 Pm on a Saturday, Sunday or, major holiday? The commission averages out as some properties they make zero on as expenses eat them alive. Lastly, your agent was working in the interest of you based upon experience as agency law dictates. I would like to know your opinion as to what hourly rate would be equitable- you may have been charged more!.

If there is a buyer in Southern California willing to pay me by the hour to advise them, help them find a home, and help protect their interests through the whole buying process until close of escrow, PLEASE CALL ME!

I've been a Realtor for 29 years. I am consistently studying the current and ever changing real estate market. I study real estate law, try to keep up with lending, taxes, and marketing, to name a few. I pay my office fees, local dues, state dues, Realtor dues, MLS dues, fees to lease my lock box key. I buy my signs, lock boxes, ink, paper, and gas. My whole life is focused around helping buyers and seller accomplish their goals.

This discussion has motivated me to keep track of my time and expenses for a month on each transaction. I would swear that sometimes I make about .15 cents an hour on a transaction.

To top that off Realtors don't have an employer paying into a disability, social security, unemployment, health insurance, or a 401K account for them. We don't get paid sick leave or a paid vacation. I think most employees would be shocked to find out just how much they really cost the company they work for.

If buyers had to pay us $80 to $100 per hour I am pretty sure they would have a lot more respect for our time.

Having said all of that, I do know that not all Realtors or real estate agents are created equal. Nor or all mechanics, customer service reps, dentists, or any other employees in any trade. My advise is to find a Realtor that you like and whose experience and knowledge you respect.

The seller pays the listing agent the commission. The listing agents then chooses to offer some of what they are getting to an agent that brings the buyer. The commission offered to the buying agent to bring a ready, willing, and able buyer has nothing to do with the buyer himself.

Hawkeye, I would absolutely love to charge by the hour. The truth is...there would be very few takers, including you, I'm sure. Seriously, if your CPA is charging you 160 per hour and your attorney 200...let's say I only charge 100. For a Sunday open house from 1-4pm, would you really pay me $400?? I'm including travel, time to travel, setup and closing afterwards.

I'm close to you in San Francisco. For many of the newer condo developments, including the one in which I currently live, the HOA requires 2 agents to cover the unit and the complex front door...would you pay 800 bucks for an open house?

For the weekly broker's tour (in SF, held on Tuesdays for 1.5 hours), you're shelling out another $400.

What about folks who need or want to see the house after work or any other time...another $100 per showing.

For one week, with only one Sunday open, one Tuesday tour and one personal appointment...$700-$1400 per week, with no guarantee of selling the home. Hey, I'm in!!

Good arguments but to many footnotes makes it hard to read. The conclusion seems to lean on the side of a retail sales approach but real estate isn't any where near a retail transaction, there are legal implications. The salesperson of an hd tv doesn't have any legal responsabilities to the buyer.

A Critical Assessment of the Traditional Residential
Real Estate Broker Commission Rate Structure

Mark S. Nadel

AEI-BROOKINGS JOINT CENTER FOR REGULATORY STUDIES

Hello Hawk:

Thanks for your question, which has certainly raised a lot of interesting comments. I, too, will side with those wanting to be paid by the hour as this would mean I'd be compensated whether a home sold or the buyer purchased. No one would ever agree to pay for my services on this basis since Realtors are as much revered as we are devalued, and paying by the hour would require a consumer's acknowledgment of the skill of a Realtor.

I'd like to address, however, this myth I've read and is seemingly perpetuated by many buyers or sellers that Realtors are making unwarranted and extraordinary sums of money on transactions. While it certainly does seem high--if I could keep every penny I made from that commission--one has to understand that the commission assumes the "risk" the Realtor takes in doing a lot of work for clients or potential clients for naught. Since we are both in California, might I break down the cost of being a Realtor so that you might have better understanding of the fees? Oh, please keep in mind that no one is making 3 percent commission on a deal anymore.

To be a Realtor in California, whether you sell a home or not, there are fixed expenses associated with the practice. These fixed expenses come in the form of "desk charges" to be with a broker, board memberships, MLS membership, database memberships, marketing company referral fees, office supplies, car insurance (we need more of it than regular consumers), continuing education, telephone costs, website hosting, and Supra key rentals. On the average, if you are an active Realtor working this business as a profession and NOT as a hobby, this fixed cost is about $1200-1500 per month.

Once a Realtor has a transaction, there are then costs associated with the servicing the client, such as travel and gas, advertising, marketing costs, web costs, database access charges, report fees, printing, emails, and time. As one Realtor noted, on the average, a Realtor must work with between 10-12 clients in order to close one deal--so the cost, even if it is only $300 per client in reports and travel x 12 clients, means that the average Realtor expends $3600 to make the one commission. If the commission is the average 2.5 percent on a $800K home (which is a higher than average price of the home selling today--the median is $500K here in Santa Clara), the commission is $20k. Subtract from this the fixed costs of being a Realtor with the variable costs of handling the transaction, and the net total to the agent is -$1600 (that's negative $1600) before the broker's cut, which may be as little as 10% for a negative (-)$3600. On the average, Realtors are closing about one transaction per quarter, so all things being as mentioned above, and the agent is making $80K in gross commission, losing $18K in fixed costs, $14400 in variable costs, and $8K in broker's fees for a grand total of $39,600 for one year's work performed 7 days per week during the day and the evening. I'll bet you make more than that for a 40 hour work week.

Of course, there are REO agents selling as many as one or two transactions per month, so they're making a lot more, right? Wrong. My friend who is an REO agent pays all the same fixed fees that I do, except that for his 2 percent commission on the sale of the REO property, he will lose 40 percent to the Asset Management company for the right to sell the home. He's still doing all the same things a Realtor must do to advertise a property for sale--$500 in flyers, $1500 in newspaper ads, $350 in web marketing and adverttising, $350 in emails to Realtors for a total cost of $2700 in transaction related variable expenses. Here's how he makes out on an $800K sale: Gross commission on an $800K home at 2 percent is $16000, less 40% to Asset Manager -$6400, less variable fees of $2700 and broker commission of 20 percent or $3200 and my friend nets a whopping $3700 on the sale BEFORE the application of any of the fixed costs. Again, an extremely small return on the investment of 50-60 hours of work per week.

Truth is, Hawkeye, Realtors are their own business operators and, unlike you, a salaried employee, there is always a cost associated with every dollar we make, so whether a client buys or sells there is a cost and that cost is not guaranteed to be covered by a sale. The CPA, the doctor, the attorney, on the other hand, gets paid whenever he/she works with a client--and, therein, is the reason for the different fees structures.

Thank you for your question and for this opportunity, I hope to debunk some of the misinformation regarding the sizeable and unearned commissions paid to Realtors today.

Sincerely,
Grace Morioka, SRES, e-Pro
Area Pro Realty
San Jose, CA

In Florida there are agents and/or brokers who charge by the hour, the fact is, the consumer traditionally has chosen to pay the commission rather than an hourly rate. Hawkeye, if your concern in asking this question is that you will pay more to your agent than he/she is worth, my suggestion to you would be to estimate what the service is worth to you, put it on paper and pay a visit to 3 or 4 referred agents. Tell them what your numbers are, and tell them you want to employ their services at the rate you think is fair. I think that this will answer your question in a new perspective.

Hawkeye, Have your financing in place, your goals set and you will find many willing to discuss fees.

armchair quarterback, Dunes

Thumbs up from me,Jacqueline. Fantastic answer!

After reading all the posts below, the answer is clear. Most full time, professional agents would be more than happy to move to a pay structure that is similar to an attorney or a CPA. It would be wonderful to know that, once retained, we would get paid for every 15 minute increment we work. It would take away the need to work with a large number of Buyers and/or Sellers because statistics show that currently only 1 out of every 12 actually results in a closed sale. It would eliminate the Sellers currently in market who are really not motivated to sell their homes. It would eliminate the Buyers who are window shopping. It would actually increase commitment on all sides of the transaction. It would raise the bar for agents and may even make a positive impact on the perception of our business because consumers would finally get to see exactly what we do all day!

You have my vote Hawkeye......where do we go from here?

I regularly turn down about 9 out of 10 sellers due to unrealistic pricing expectations. Like I said - as a listing agent, I'm happy to work for a set hourly rate + expenses - you let me know when and I'll go to work happily.

As a buyers agent, your argument is faulty regarding the buyer paying the commission and I've already explained why (I notice no response from you on that point). A buyers agent gets paid for procuring a buyer - that is worth what a seller is willing to pay...if that is 3% then so be it - that's what it's worth, I've had builders offer up to 12% to agents who procure a buyer - that's what they're willing to pay. If you as a buyer were to engage me in an Exclusive Buyer Agreement to help you find a property suitable for your needs, then and ONLY then are you responsible for my payment, and again, if you'd rather pay me a set fee + expenses, I'd be happy to go to work for you in that respect as well.

Again, the issue comes up "how many buyers are willing to pay a set fee + expenses regardless of whether a property is secured?"

I spent 10 hours with a buyer client today and am planning on spending another 10 with the same client tomorrow - at $160/hour that would be $3,200 + expenses not to mention the time spent previously going over the 50 homes we decided NOT to look at today via phone & email and also the time spent after we find them the right home and put it under contract...

...keep in mind, they're looking to purchase a $150,000 home...a 3% commission would bring me $4,500 less my split & expenses...assume I have a 70/30 split with my broker, my net would be $3,150 before expenses.

Like I said - I'd happily work for your hourly rate - bring it on.

It is very true that agents spend a huge amount of time and money marketing themselves, and this does not benefit the consumer. It is common for agents to pay as much of a 40% referral fee to "corporate relocation companies" that send qualified clients tom them because those clients are considered sure things. I would love to have a different system in place, mainly because many in the general public like yourself feel so strongly that agents are overpaid. I just want to be compensated fairly for my time, knowledge, experience, guidance, advice and hard work.

All too often, I hear the blame for high commissions put on MLS's, the Association of Realtors, or the real estate establishment. Real estate is one of the most open businesses out there. If you wanted to, you could get a real estate broker's license in a few months, and begin advertising yourself as available for hire by the hour. Many have tried such different approaches, like Redfin you mentioned earlier, or Zip Realty, Help-U-Sell, etc. but the overwhelming number of the general public continues to use more traditional agents. This is their choice, and it's made because the job of a real estate agent is unique. It's educating and advising on the market conditions and area conditions, hand-holding through the process, sometime psychologist, part financial advisor, negotiator, among other things all wrapped up into one. Each transaction is so different and there is so much that rides on the advice you get, and the trust you have in your agent. It is much more of a personal service than a CPA or attorney would give, and the final outcome is almost always unknown. I doubt your CPA or attorney has run an offer over to another agent on a Sunday night to make sure it's received in time, or vacuumed your vacant house before holding it open. It is that unknown and all inclusive service factor, as well as the public's desire to pay only when their transaction is completed that is mainly responsible for the higher commissions, not some collusion between 1 million agents to keep commissions higher.

When someone walks into my office and says they want to buy an $800,000 house, I have no idea at that moment whether they'll be easy to work with or not, whether they'll buy the 5th house we see, or the 50th, whether they'll get cold feet, change their mind and decide to move to another area, decide to buy their friend's house which isn't on the market, or buy a house through Aunt Martha who just got her license. I take it on faith that they are going to follow through, and I try to do the best of my ability to help them achieve their goals. If it gets to the point, where it's obviious they're just wasting my time, I will surely cut the rope - but by that point, the damage is done. The time and money has been wasted, and there is no going back.

I don't need my choice of 450,000+ agents in California to work with.

JR: Again, it looks like the majority of real estate agent haters are from California.
~~~~~~~~~~~~~~~
The other professional classes screen clients and employ efficiencies that ensure a focused, highly productive effort where the cost to benefit ratio ensures profitability at a reasonable billable rate. All the classes of professionals I mentioned routinely turn away prospects, but I'm not sure to what extent REA's do so (seems more like more of a shotgun approach).

Metaphorically, are you mowing the lawn with tweezers and then trying to bill for the excessive time that it takes? Efficiency is the hallmark of American enterprise. How many of you have routinely turned away (or ultimately fired) clients because they are wasting your time and diluting your earning power?

JR: If only when we asked, all the real buyers would identify themselves! If I qualify too hard, they don't want to be pressured, they don't want to give me answers. . . . and how many of us have fired clients? I'm sure many of us have. Unfortunately it's after they've already wasted our time. I was just talking with my partner about all the time I could have spent hanging around the beach last summer, when I did no business for 2 solid months, instead of driving around lookers and going on listing presentations where I turned down listings from unrealistic sellers.

Charging an hourly rate would increase the amount of clients who stick with us from start to finish in terms of buyers but I could not forsee this happening at any time.

I did not read through every post but we can kinda alter the commission based on sales price in the broker relationship form between buyer and seller. For example in the case that the selling commission is less than "x" we can have the buyer sign they will pay us at least "x" and/or make up the difference between our fee and what the seller is paying the buyers agent.

I pay my CPA $160 per hour and my family attorney $200 per hour.
~~~~~~~~~~

I pay my CPA a flat fee. Not sure if this is still done, but I once paid an attorney 1% of the purchase price to buy a house. As far as I know, it was pretty standard then (30 years ago). Financial advisers are paid a percent of the portfolio.

If you had to pay us by the actual hours we put in,you couldn't afford it!
~~~~~~~~~~~

And you'd be paying even when you didn't buy! How many buyers would go for that? Some buyers would be paying multiple agents!

Thank you everyone for your responses, this is a great dialogue. I'm pleased to see so many bright, thoughtful folks taking the time to respond and very much appreciate it. One clarification about my environment. I'm in San Mateo (SF Bay Area Peninsula) where a modest 3B/2B, 1300 Sq Ft rancher built in the 1960's will easily fetch $800K to $900K, even in the current market. That's why I used the $800K example; it's actually modest for my market (hence the reason we are looking in San Ramon/Dublin).

Having read the all the recent responses, I still see little difference between Real Estate Agents and the other types of credentialed professionals (CPA's, JDS, MDs, DDS'). Whether sole practitioner, small firm partner, or associate in a major national chain, the problems and challenges outlined by the responses below are very similar to what the other classes of professionals experience.

However, I think Steve is on to something very significant regarding the key difference: efficiency. The other professional classes screen clients and employ efficiencies that ensure a focused, highly productive effort where the cost to benefit ratio ensures profitability at a reasonable billable rate. All the classes of professionals I mentioned routinely turn away prospects, but I'm not sure to what extent REA's do so (seems more like more of a shotgun approach).

Metaphorically, are you mowing the lawn with tweezers and then trying to bill for the excessive time that it takes? Efficiency is the hallmark of American enterprise. How many of you have routinely turned away (or ultimately fired) clients because they are wasting your time and diluting your earning power?

Thanks,

-Hawkeye

Steve:

If I open the Yellow Pages, it flops open to pages with attorney and accountant ads. Just look at the back cover, as an example. You won’t see the same types of Realtor ads in there.

EVERYONE from doctors, lawyers, accountants and Indian Chiefs have the same dilemma: the system is broke. EVERY SYSTEM IS BROKE. You ought to see the bill my daughter the doctor gets for her malpractice insurance. And you think we have too many Realtors? How about attorneys? And you think WE have association dues, fees, subscriptions, etc. – there are MANY professional fields out there that pay WAY more than we do for that sort of thing. As for spending time and money promoting ourselves and looking for clients, Realtors worth their salt have MANY happy clients more than willing to refer their friends and family. Personal advertising is WAY at the bottom of my list of places I spend time and money. I spend MY advertising dollars on my client’s listings. And believe me, THAT bill is HUGE.

If you don’t like the cost of selling your house, hire a discount internet broker. If that was such a great idea, everyone would be doing it. I can’t remember the last time I saw an internet-based company’s sign in front of a house for sale. Discount internet-based companies, in an effort to fix things, have discovered it’s not as easy as they thought. They have ALL lost BIG chunks of money in the past few years. They can only retain VERY green agents – and those typically only for a short period of time. As for support and knowledge, forget it.

And then there is the infamous “For-Sale-By-Owner.” Haven’t seen one of those signs for an awful long time either. Bottom line – those how have tried in the current market have discovered it doesn’t work Many who tried and succeeded when the market was hot have ended up in court because they lacked the required knowledge.

Don’t like it? Fix it. Come up with a better solution. There have certainly been enough talented people out there trying to do just that. So far … no such luck. But maybe you are the man for the job.

In the meantime, a good Realtor is just like an attorney – you may not like us, and you may resent paying the bill, but when you need a good one, we can actually keep you out of trouble and save you a HUGE chunk of money and grief.

.

You have really stirred up the answers!! Most of the public do not understand that of the large sum of money the commission commands, whether it's a buyer or seller, it is split in many ways and as an avg an agent may make 1.5% of the sale price after all the splits. Of this 1.5% we pay for ALL our own costs. You have to have a large team under you to make a lot of money in this field. I prefer to be hands on with my clients, earn a good amount of money for the over abundance of hours and enjoy the balance of my life. I would suggest you find a honest, hard working, knowlegeable and assertive agent that you feel very comfortable with after meeting.
Suzanne Looker

Steve, another point that goes to what you were saying is, those agents who do not do good work and do not take care of their customers and do not keep up w/ the market and changing laws, will rapidly be history and go into another line of work. Dave

Steve, I would guess it takes an AVERAGE of 100 hours per transaction. I do about 25-30 sides per year, most are not dual agency (both buy and sell) where revenue actually goes down. My average work week is probably about 60-70 hours. Winter a bit less, summer a bit more. In any one day, I might work on a half a dozen different transactions so the accounting of hours is tough. There is a lot of double dipping on time. e.g. I have an appointment with Billy in Spokane so I drive 30 minutes to see him. That chalks up against Billy. During that drive, I spend probably 25 minutes on the phone dealing with administrivia for 4 other transactions, so each of those gets some time. You get the point.

Regarding self promotion--we spend so much time doing that because, in part, of the fickleness of the public. You can work with a buyer for tens of hours, give them advice, protect them from dumb mistakes (buying a house for too much, or one that really has too many problems for their abilities) then, they go buy from a guy at an open house and your time is gone.

Most people who do not do sales, period, and especially real estate sales can comprehend the stress level of this job. If you do it well, and I do, there is very little rest for the weary and you truly must be able to juggle very well. Many of us do this job because we like helping people. I am in the top 10-15 percent in my MLS. Rich is a long way away. So, when I get a call from my clients like the one below, it makes it all worth while.

I was gratified when I had a call from a client who closed in October. He was concerned about the snow on my many buildings and asked if he needed to bring his snow blower over to help me get them cleaned off. He got the work we did (He, his girl friend and I) to buy his house. Folks like that are part of the reason we do this job! (I had already cleaned them so he did not need to come.)

But, in the end, those who appreciate our services will use them, those who do not will not. Dave

Carl,

I don't think RE agents are getting rich doing nothing. Far from it. Bottom line, however, is commissions are excessive - namely as a result of FAR TOO MANY agents out there. Basically, the pie is far too large and it's being sliced far too many ways.

I don't need my choice of 450,000+ agents in California to work with. That's ridiculous. How much of an average agent's time is spent trying to secure clients, promoting themselves, writing checks to various associations or chasing unlikely-to-close clientele -- none of which provides any value to the consumer -- rather than actually brokering deals where their expertise serves a useful function?

The system is broke, largely because the top hierarchy of the system (mega brokers, MLS's, NAR, CAR, etc) have a revenue model based on VOLUME of agents via desk fees, association dues, subscriptions, etc. They made sure it was painfully easy to become licensed, as each licensee likely equates to more revenue and, perhaps, churn more properties via an oversupplied labor force. As a result the actual talent in the industry is forced to waste far too much time selling themselves, which provides no consumer value, instead of doing their actual job.

Commissions remain absurdly high despite the efficiencies seen from technology in the last decade because the industry has created an environment where too few of an agent's hours are actually revenue-generating. In the end, the consumer (and most RE agents) pays for this inefficiency. Yet ~95% of RE agents seem hell-bent on defending the archaic MLS / 6% model. I don't get it.

Hawkeye and Steve:

There is a tremendous amount of misunderstanding about what a Realtor actually does. The stereotypical idea that they drive flashy cars, spend time on the golf links swinging their Nike clubs and flashing their Rolex watches should have disappeared with Rodney Dangerfield.

Can’t remember the last time I was on the links – but I do know they were on my barbecue, not the local greens. And I know that I start at 5:30 a.m. every morning, work until about dinner time, and work every weekend. And evenings as required. It’s what is needed in the current market to keep food on the table.

Successful Realtors – and I count myself as one of them – put in LONG hours of extremely hard work with little or no time off. There is no margin for error in the current market, and no gravy either. The expenses of doing this business have skyrocketed and the amount of knowledge, equipment and expertise required to stay ahead of the curve have drastically increased in just the past 3 years alone.

This is NOT a business for the faint hearted, those unwilling to work VERY hard or those who can’t do anything else so they decide to become a Realtor.

If you really want to know what we do to justify our commissions, come and follow me for a week.

If you can keep up, that is.


..

"In short, for an average transaction at an average rate of $100.00 an hour, you would be charged over $50,000. "
---

It takes over 500 hours to close a transaction? 12.5 forty-hour work weeks?

Hawkeye,Thank you for a great question. In viewing the post I think that David Atherton answered the best.

"Finally, you, John Q. Public, will not pay us by the hour for services rendered. My broker has tried to do this for years. He has a standard fee schedule and offers to let people work by that. He has not had a single person take him up on the offer. Everyone wants the commission basis as a way to pay."

The bottom line is that the consumer directs us as to how we are paid and how much.

If a percentage is to high they will not pay it. If they want flat rate they can get it. But it seems that most people want there real estate agent day and night and would just rather pay a percentage.

Hi Hawkeye,

I hope the many responses have answered your question. If not, I have a list of all the necessary steps needed to complete a transaction once an offer is written. It explains the hundreds of steps needed, many behind the scenes, to manage the transaction and to act as a fiduciary for that client.

In short, for an average transaction at an average rate of $100.00 an hour, you would be charged over $50,000. In the current structure, you don't a penny of our commission, unless you are either the seller or purchasing that has no broker and no commission.

We are grossly underpaid for all the services, responsibilities and risk we assume, but continue in this profession because we love it and enjoy the rewards of helping people.

I am sure there are many realtors that would charge by the hour if you are willing to pay the fee. In this profession, you get all of our services for free, until you contract with us to sell a property for you.

Regards,
Suzanne Looker

Ditto, customers would not be able to afford the fee for a normal transaction. The average person has no idea of the time and money agents have invested in a transaction.

Don't think it would solve the myth of RE agents being over paid....................

Hi Hawkeye, I would love to do an 800k sale! My highest is about 460k. Let's use that sale as an example. Gross commission was almost 14k! Pretty good. What did my buyer get for that? Probably close to 100 hours of work, but even more importantly, she was protected from buying a different house she would have regretted because I made her do a home inspection before we even wrote an offer. (Only time I have done that.) When the inspection came in, she understood why I did not like the property. Also, it was priced about 100k over value. I got a good paycheck, but, my client got very good value.

I am trying to think how many times I have shown three or four homes and written it up and sold a home--maybe once or twice in 12 years. 20-40 properties would be my typical experience. Perhaps fewer with locals who know the market and more with out of towners who I want to be sure know what they are doing.

So, that goes to the care. The other aspect is, we probably do more free work than any other industry around. Partially, that is a self inflicted gunshot wound. Most of us do not do agreements that tie a buyer to us so we often show a number of homes and the buyer walks into an open house and buys from the agent sitting there and our time is lost. We spend an inordinate amount of time providing free market analyses, showing homes to people who do not buy from anyone etc. I agree, taken as a still in a movie, the fees seem high. But, the average annual income for our industry is really pitiful.

The costs of the business are pretty steep. My advertising bill last year was about 24,000. Truthfully, I am looking at other options because it did not return that well. All things considered, 90k gross buys me a 40k a year job.

Finally, you, John Q. Public, will not pay us by the hour for services rendered. My broker has tried to do this for years. He has a standard fee schedule and offers to let people work by that. He has not had a single person take him up on the offer. Everyone wants the commission basis as a way to pay.

In the end, what we get paid should not really matter to you as long as we take care of you. I know that statement raises hackles, but, it is true. If the house is worth 800k, it is worth that. If you come to me to buy that house, I am going to negotiate the best deal I can for you. In my area, I would probably save you 50-100k on an 800k house due to that being a slow realm of the market. If you really do not think your agent deserves that (why are you working with him/her?) If it is the listing agent, nothing precludes you from negotiating the commission although I would likely resist any initial discussions on the topic. Keep in mind, most states have laws precluding paying commission to anyone other than other realtors/brokers.

Good luck in your search. If you know any 800k range buyers who want to enjoy skiing from their roofs, (Record snow fall over 6' beating record set in 1960 or so.) here in the Spokane WA area, send them to me! Dave Atherton

PS, I should have gone to bed an hour ago and my eyes are blurry, so forgive stupid mistakes! Dave

"Even the most fundamental pricing strategies incorporate cost of sales into the asking price, so if someone is getting paid for a sale related cost, it is coming straight out of the list price that the buyer is paying. If either agent (seller's, buyer's, or both) were to waive their commission, the price of property would drop by the corresponding percentage."

That's not true at all...the sales price of a property is what YOU as a buyer are willing to pay on any given day - it has absolutely nothing to do with what a seller "wants to make" and is regardless of any commissions being paid out. If you are willing to pay it, that's the value of the property. Just because you'd LIKE to pay less, doesn't mean the property is WORTH less.

A buyers agent is paid for procuring a buyer for a property - in my neck of the woods there are 1-2 $800,000 sales per year - if I procure a buyer for one of them, the seller is THRILLED to give me my commission out of his proceeds.

If I get you a great deal on that $800,000 home and you leave the closing table thrilled with the service I provided for you and you know you got a great price on the home - why would you begrudge my being able to feed my family?

Redfin operates at a loss, and has changed their business model. They offer to refund only 1/2 the commission now, instead of 2/3, and has added minimum fees. I'd submit that's a poor choice of example.

Carl, thanks but my CPA, Attorney, and Doctor are all in the same boat:

For my CPA, some clients do vanilla taxes once a year for a few hundred bucks. On the other extreme are top tier clients who need complicated tax strategies that yield thousands in fees each quarter.

Same for my Attorney. Some clients just need vanilla estate planning for a one time service charge. Others need significant settlement negotiations to avoid litigation, yielding thousands in fees.

Regardless of through put, both of the above have to pay out of pocket yearly license fees, personal malpractice fees, etc. Additionally, they remit a respectable chuck of their billable hours back to their respective firms, to cover advertising, administration, facilities, umbrella insurance, etc. And yes, even Attorneys, CPAs, and Medical Professionals have their share of deadbeats, who skip out after racking up bills that exceed their retainers or insurance providers who deny coverage for procedures (after they've been rendered).

Regarding transaction volume and associated income and costs, in my opinion, you must normalize the data to only reflect full time Real Estate Agents.

Joshua, thanks, but knowing my current pro's (CPA, Attorney, and Doctor), they are all dead serious about their work (workaholics really) and while I know they are always busting their butts for someone, all that really matters is the time they spend working for me (cause that's when I get billed). Note that in all my posts, I place Real Estate Agents on par with other respected professionals. For an REA who is comparable to the other professionals I employ, I'd gladly pay a commensurate, pro-rated hourly rate for services rendered and that they substantiated the work that was billed.

For simplicity, let's assume you are on par with my CPA and could bill at a fully burdened rate of $160 an hour. Given that rate, you'd have to spend the equivalent of 150 cumulative billable hours, working only for me, in order to secure a gross 3% buyers commission of $24K (based on my original example of an $800K sale). I'll have to check the NAR averages for churn in my area, but that seems like a lot of hours to me for a "vanilla" service (exempting exotics, such as short sales and REOs).

Brian and Tony, I'm not sure I buy the "seller pays the commission" argument. Even the most fundamental pricing strategies incorporate cost of sales into the asking price, so if someone is getting paid for a sale related cost, it is coming straight out of the list price that the buyer is paying. If either agent (seller's, buyer's, or both) were to waive their commission, the price of property would drop by the corresponding percentage. This is exactly how services like Redfin can provide a five figure rebate to their customers.

Come on gang, you're not convincing me...

- Hawkeye

What you're paying for is the flexibility to pay a fee only when your transaction has been sucessfully concluded. This is actually quite similar to an attorney that works on a contingency basis in a civil case (except they usually take 33-40% of the award). The reason the system has remained that way for the most part is that most people prefer not to pay up front or to pay anything if their goals are not met. The real estate community as a whole has accepted that premise, and is one of the few industries where you can get someone to work for you on a contingency basis, in many cases without even a simple contract.

If agents were paid by the hour, how exactly would that work?

If I represented you as a seller, would you dictate how many open houses I did, so as to limit your costs? Would you be surprised to be charged daily for calls I made on your behalf to other agents to ask about your house? Would you want to pay me directly for showing your property to potential buyers who decide not to make an offer? If after 3 months of no offers and weekly bills showing up for all the marketing costs, time, signage, etc, do you think you'd feel good about the situation? I think you'd find that all these costs could add up in a hurry, and that none of them may produce the desired result - the sale of your home at a price you're comfortable with.

If I represented you as a buyer, should I bill you for houses I toured for you on my own, even if none of them were right for you? If I take you to five houses to view, and none of them are to your liking, are you prepared to write a check to me for that outing?

I agree with you that the compensation for higher priced homes seems high. I certainly thought that before I got into the business. But, you also have to realize that for every $800,000 sale, there are buyers you work with for months who end up not purchasing at all, sellers you spend thousands of dollars and countless hours marketing for who, in the end, take their properties off the market. There are many companines & individuals that have tried to take different approaches to compensation, such as refunding a portion of the commission, or working on a flat fee basis. For the most part, they have failed, continue to lose money, or make a bare bones profit because the cost of being in the business and providing the types of services that the public expects is expensive and time consuming. It's also feast or famine (mostly famine recently) for many in the business, so that $800,000 sale may have taken months to put together, and is likely few and far between.

If you did offer an agent the opportunity to work hourly, I think you'll find many that jump at the chance!!

Who would pay our fees? Buyer, selle, would either have money to pay up front as retainer.

Many of our clients love service we provide BELIEVE it is real neat to become a realtor till they determine dont have money to maintain all fees required, "back of house it requires prior opening a door for you", cars, phones, websites, professional organizations, MLS, CSS, continual education, car, gas, insurance, learning technology, advertising, community service for exposure, office fees, signs, lock boxes, "realtor tool kit", understanding legal laws for State, these are only few items it requires just to start out as a realtor.

It would be great therefore although we qualify our clients at end buyers remorse pull the plug on not purchasing OR decide to get a divorce, lay offs, and etc, we invested time into locating a home, number of hours lot hope family will either sale or purchase a home.

Hawkeye,

If you wanted to pay me by the hour, whether we procure a sale or not, I would be happy to go to work for you.

I offer many of my sellers a flat rate up front with a drastically reduced commission on the back end (would save them thousands of dollars on a transaction)...none have taken me up on it. Evidently they'd rather keep their cash in their pocket until I sell the home (at which point they use the proceeds from the sale to pay me).

The simple truth of the matter is I am in this business 24/7 - this is all that I do and being that it's all I do, I've gotten very good at it. I negotiate $50,000 - $1,200,000 deals for my customers and I take my job very seriously.

Given the nature of my business, there are no guarantees (I can't guarantee someone will want your house for the amount of money you want to sell it for, and conversely I can't guarantee that the house you'd like to purchase exists for what you're willing to spend). Because there are no guarantees, many buyers & sellers are uncomfortable paying my fees up front regardless of the outcome.

Let me ask you, then:

1) What is your suggestion for dealing with this issue?
2) How much are you willing to pay per hour?

Thanks for the great question - I look forward to exploring it with you.

-Josh

Hawkeye:

Real Estate income is built upon averages, not individual transactions. We may sell an $800,000 listing, but we will also sell many homes that average less than $250,000. As an example, for the top ten Realtors in Alameda County, the transaction average in the current market is $279,870.00. In Contra Costa County, it is SUBSTANTIALLY less.

This past 12 months (calendar 2008), there were 5,803 Realtors in Alameda County who were active in some way. That number has been drastically reduced in 2009 because many Realtors simply cannot make it in the current economy.

Of that 5,803 Realtors, only 247 (4.3%) of them sold more than 1 transaction a month.

Let’s take this a step further. We’ll assume a best case scenario and use an average sales price of $300,000 at a commission to the listing company of 3% and an 80% split to the agent (very typical split for an agent selling 12 or less units a year). Keep in mind that a standard 6% commission here in the Bay Area is typically split 50/50 between the selling company (buyer’s agent) and the listing company (seller’s agent). That means a gross commission to the listing office of $9000.00.

Gross commission: $9,000
Office split at 80% -$1,800
Transaction Coordination Fee -400
Balance $6,800

For 95.7% of Realtors in Alameda County, their average gross take home pay is LESS than $81,600 a year. But we cannot stop there. Real estate is a VERY expensive business to be in. Yearly expenses include:

Desk Fee $3,600 / year
Professional association fees: $2,500 / year
Errors and omissions insurance $2,000 / year
Internet fees (Realtor.com, etc.) $1,200 / year
Office expenses, computers $1,000 / year
Total $10,300 / year

That leaves $70,300 a year of net income OR LESS for 95.7% of Realtors in Alameda County. AND THIS DOES NOT INCLUDE any vehicle costs. Bottom line: this group is not getting rich.

And it doesn’t stop there. Let’s just say I’m the listing agent – my expenses for an average listing are $2,000 for staging, hundreds of dollars for promotion and more – all paid up front, regardless of whether or not the listing sells. If I sell twelve in a year – you do the math.

Finally, of the 5,803 Realtors in Alameda County, a full 5,068 did 6 or less transactions last year. When you get below 6 transactions, you can rest assured that your split goes down – it will typically be 60-70%. Therefore, it’s safe to say that 87.3% of the Realtors in Alameda County brought home an average income of less than $35,000 of real estate related income.

It’s no wonder so many Realtors got out of the business last year.

As Dana Schuster said, if you paid Realtors by the hour, most would be WAY ahead.

I pay my CPA $160 per hour and my family attorney $200 per hour. When needed to satisfy my (broader) service requirements, either of them will engage others in their respective Firms, and those folks charge anywhere from $25 per hour (clerks) to $400 per hour (experts), inclusive of things like expert negotiators, notaries, etc.

In every interaction I have with the above referenced pro's, regardless of who does what, I get a detailed monthly invoices describing exactly the work done and at what rate; they track and report it down to the cell phone call and/or photo copy (including what was copied).

If the CPA's and Lawyers (and Doctors) can do this, why not Real Estate Agents? My CPA could never convince me to pay him a flat rate based on a percentage of my total gross income. My attorney could never convince me to pay him a flat rate based on my "potential" liability costs. If my Doctor tried to charge me a percentage of my total earning power, resulting from the increased longevity that might be realized from his treatment, I'd probably burst my spleen from laughing (then I'd have to call my lawyer..LOL).

Help me out here gang, what am I missing?

-Hawkeye

Great question for sellers. Correction is buyer should pay nothing. The selling agent usually splits half of the listing commission with the buyers agent. Next, why charge a percentage? Answer, why do ALL the FSBO companies stink? Same answer. They charge for individual services, per hour, per item without guarantee, or in most cases, not much. We as professionals (as you astutely pointed out) charge only if we do our job correctly in price, exposure and consulting sellers to a closed sale. There are dozens of reasons deals do not close. Death, divorce, job loss, credit, lying mortage people, bad title companies...etc. We still do not get paid if it does not close. The straight commission person "eats what we kill" (figure of speach) so we have to get good at our job to eat and stay in business. It is a great business. The next great question: 3% each agent is so cheap (compared to managers for talent, head hunters etc) why complain?

I think a more appropriate answer may be as a "buyer" you are not in fact paying the commission. The commission is being paid by the seller of the property. I am a Mortgage Broker but do see the need for experience full service agents. Would you go for open heart surgery to a med student?

I have seen too many purchases lost to "lack of experience".

I am happy to say I am a professional and would be happy to refer you to an agent that could help. It's my feeling that what you get when you hire an agent is a professional that "negotiates" your purchase.

I think that may be what you are looking for. There is value in negotiation.

Good question, It seems that it would be difficult to figure out how many hours an agent works. Do we start the clock every time the phone rings.

Do we start the clock when we start typing on trulia, is there a minimum billing, maybe 15 minutes for billing. If so you owe me $10.00.

If you had to pay us by the actual hours we put in,you couldn't afford it!