I couldn't agree with you more. If consumers don't see the value in our services, they're not going to be very happy about hiring us. In fact, if they're not happy... they're not going to hire us at all. So it's important that we provide that value, or we need to join the ranks of the discount agents.
And I agree, that how much it costs me to provide my services (something totally beyond the conusumers' control) is completely irrelevant to consumers. They're also not interested in hearing how many directions and what percentages our commission is split, all they know is that they have to pay 6% and what are they getting in return. If I'm not earning enough money to cover my costs, then I have three choices...
1) Increase what I charge (rarely a good business model, unless you're Nordstrom's and Starbucks and offer Nordstrom's or Starbucks quality services!)
2) Decrease my costs (sell the Mercedes, and buy a Prius)
3) Learn how to include the phrase "Would you like fries with that" in my next career.
Again, we need to offer value, or "get off the pot".
Thatâ€™s what brings me to basic disregard for decorum and professionalism that this thread is a testament to. Chris, you should be ashamed of yourself. I understand that you wonâ€™t be. Youâ€™re baseless arrogance is astounding, and I doubt that Iâ€™ll be the one to shed any enlightened perspective your way. But letâ€™s get something straightâ€¦youâ€™re not comparable to â€œarchitects, lawyers, doctors, accountants, etc.,â€ as Cameron has alluded to. You are entrepreneurs. You are contractors. 40 hours of training gets you your license. Itâ€™s not rocket science. It doesnâ€™t require hundreds of thousands of dollars of education. So yes, you have some overhead, remember, youâ€™re entrepreneurs. And thatâ€™s also why you can ask whatever youâ€™d like in return for your services. However, before you continue to ask for someone to suggest what you should eliminate from the menu, perhaps you should provide a detailed menu with pricing. Please provide a breakdown as to how much each service you provide would total $49,000 or $60,000 respectively? Youâ€™re overhead, and indirect costs are not my problem as your client. You do that to establish a brand name. That brand is you. Youâ€™re an entrepreneur remember? And regarding the buyerâ€™s agentâ€™s best interest to act as a fiduciary, I only wish that was likely. True there are regulations within your industry, but how do you enforce that fiduciary aspect of your relationship? You canâ€™t. You have to act in â€œgood faith.â€ So you can convince one of your buyers to spend as much as you can justify with numbers. I hope you donâ€™t operate that way, but again, Iâ€™m just attacking the logic of the statementâ€¦or the lack thereof. Hopefully you realize that in acting as a fiduciary, it will better your brand. (remember thatâ€™s youâ€™re brand is you)
Chris, how well are you representing your brand with a comment like this: â€œThe industry needs no cleansing. The buyers do.â€? Youâ€™re not defending an industry, youâ€™re making a fool of yourself. Again, I realize you are probably incapable of realizing this, but I felt I should do you the service of mentioning it anyway. Now, please feel free to insult me back as much as you like, but know that I wonâ€™t reply. However, I might be disappointed if you donâ€™t try.
Deborah hit the nail on the head but I thought I would add a few things to her comments. I will make my comments in a similar format to yours.
1. While many consumers can search out most listing online, not all properties are listed online. I have a file with hundreds of properties called â€œone-shotsâ€ where an agent has a contract with the seller to sell but they don't want to go through the hassle of having it on the market.
NAR and The DOJ just figured out their spat and while it may not make a lot of sense, a consumer now/still has the option of keeping their listing off of the web. There are other examples but I think two sufficiently illustrates the point that agents have access to more and better information than the general public.
2. First $75/hour is a little short for a true professional (please don't respond with the "what about the rookie agent who doesn't have a college degree" argument. These aren't the agents I am talking about), I pay my mechanic $125/hour for heavenâ€™s sake and my attorney and accountant $200-$300/hour.
You also don't calculate the time that it takes to set up and schedule showings, give feedback to the sellers and drive to and from the showings. You can add another 2-3 hours per trip out.
I also recently had a client that I showed over 50 houses to, paying by the hour for this service really draws down the return of doing all this yourself don't you think?
3. This one reminds me of the story of the plumber who came out to a house to fix a water heater. The plumber arrived at the house and had the owner show him to the basement and the problem. The plumber looked at the problem, taped on a pipe and everything began working again. The two part ways and the plumber sends the owner and invoice for $250. The customer, irate with the cost, calls the plumber and demands an itemized invoice. The plumber sends out the following $25 - Time, $200 - Knowing where to tap the pipe.
The language in the contracts are fairly standardized, but filling them out, knowing what they mean, and knowing the ramifications of each comes only after years of experience.
Lastly it takes many hours to prepare, explain, present and negotiate a winning offer. One hour simply won't cut it here, sorry.
4. While it isn't mandatory for the agent to show up, a good agent will. It is far easier to explain any issues that results from an inspection having stood there with the inspector and actually viewed the condition.
5. You're pretty close on this one. Some take longer and some don't take any time at all, it really depends.
6. Closing - nice to have the agent there to support you, but again you're right it isn't mandatory. Letâ€™s just hope no issues arise at the closing table between buyer and seller. I would hate for your agent to be working his/her shift at McDonalds (settle down everyone, I'm joking) and not be available to help you with the problem that comes up. One thing that I have learned is that problems at the closing table are the most expensive.
Letâ€™s now talk about what you havenâ€™t considered.
1. To assume that every client in the world looks at ten houses writes one offer and then closes shows us that you donâ€™t do this that often (and thatâ€™s okay, not everyone can be an expert). The reality is those are the dream clients. For each one of those that we work with there are clients who look at 50-60+ houses, write 2 or 3 offers and then decide they donâ€™t want to move. Or maybe they go work with a rebate buyerâ€™s agent as some others have pointed out in this thread. By the way, the total amount of commission earned from those clients is $0.
2. An agent is running a business and such not all time is directly billable. If you want to pay by the hour you also need to be willing to pay for the overhead that comes along with it.
3. Commissions are always split with the broker, while there are as many commission structures as there are brokerages; a good rule of thumb is to cut your agentâ€™s payout in half. So that $14,000 commission just became $7,000.
4. There are other hard costs that come with the territory: self employment tax, gas and a car payment, marketing, staff, desk fees, association dues, education, licensing, websites just to name a few. These all have to be paid for and canâ€™t be billed directly to one client.
This isnâ€™t the complete argument but maybe the beginning of a discussion. Hopefully you can see that there is more to it than you originally thought. Cheers
While there may be such companies around here (I am not aware of any) I'd be suspicious of anyone willing to give away 2/3 of their paycheck. Like the old adage goes,"You get what you pay for". Realtors and lenders alike have to work much harder these days to put together, and keep together, a deal. Having a great agent who helps you find the right home, negotiate the best price, and get the deal closed is going to be much more valuable in the long run that a few thousand bucks at closing.
Cameron, my friend, I could have read every word of this thread and would find it awfully difficult to consider myself â€œwell readâ€ or even remotely educated for that matter. Itâ€™s ironic that what you chose to find fault with was my assertions regarding the lack of logic previously presented. The fact that you want to use a â€œbillable hoursâ€ business models in the same argument in which you purport indirect costs justify inflated prices is almost laughableâ€¦but unfortunately youâ€™re being serious. Yes, I understand that your costs are going to have an impact on the price you ask. I think I learned something about that in business 101. Wasnâ€™t it something like you want your revenue to exceed your costs? Yeah, I get it. However, regardless of whether weâ€™re in a vacuum or not, you failed to understand my point. To me, the consumer, youâ€™re costs are irrelevant. Youâ€™re price and your services (those which you agree to deliver anyway) are what matters to me. I donâ€™t care how you derive your price. You can use a mathematical formula, you can count on your fingers, but it doesnâ€™t matter. I, as the consumer, weigh the cost and the benefit of your offered services, and those of comparable substitutes, to determine if there is enough utility for me to hire you rather than the substitute. The cost is in dollars per service rendered. The fact that you spend a great deal of your time investing in your practice may be important to me, or not. Thatâ€™s an assumption that you and your peers seem to misconstrue as an absolute, however, the amount of time and money you invest into your indirect activities will always remain the variable of which the merit is debatable.
Letâ€™s use your Target example. Target may carry the same products as a another store which is 24hr. The 24hr store likely has greater overhead because they have to pay to keep the lights on and the staff moving 24hr. So for me, the consumer, if I would prefer to shop at 3am, there may be greater utility in the slightly more expensive, but similar, product available at the 24hr outlet. If that isnâ€™t a concern of mine (the consumer) then why should I care about their additional overhead? The answer is, I donâ€™t. Itâ€™s not relevant to me. I will buy the better bargain. I will purchase the item that provides me greater utility because of the saved cost. Oopsâ€¦Iâ€™ve now upgraded the conversation from Business 101 to Econ 101. I understand that Econ is a relatively sleepy subject, and so Iâ€™ll concede it was probably easy for you to lose the forest for the trees.
The problem that Iâ€™ve read time and again throughout these threads is that there is an inherent sense of entitlement throughout your trade. And before I get lambasted for what Iâ€™m about to suggest, I understand there are exceptions to the rule. But, from what I have read, and what I donâ€™t understand, is why so many agents feel their clients owe them something just for being in business. If you are a real estate agent, and you conduct yourself as a professional, invest time, invest money, continue to educate yourself, and truly care about your trade. Good for you. But I, the consumer, only owe you for what you do for me, or better said, what we agree you will do for me. Thatâ€™s it. And like you, I have just as much of a right to decide what I think thatâ€™s worth. Only when we agree, should or will we work together. Please feel free to make your case for why your services are worth whatever youâ€™re asking, but please understand that you are asking for the money that I, too, have worked hard for, and in doing so, I have a right to scrutinize how I spend it.
Unless, all the seller is looking for is representation on the MLS, and is basically selling as a FSBO. There's something for every one. If Jeff is looking to build his fortune, $98 at a time... good for him. That's not the business model I chose.
No question that our expenses affect our bottom line. But just like every business out there, we can't simply add our expenses to what we charge. We must offer value to the marketplace, and can only charge what the market will bear. For years that has been the sacrosanct 6% and it's been uncontested. Today it's being challenged. We can either reduce our expenses, or make sure the public perceives our value.
The public is not interested in how much my car payments are, nor what I pay in E&O, or NAR membership, nor MLS dues. All they know is the agent at the office across the street from me is offering 1/2% savings.
I know that I bring enough value to the table, and while I've had occasional inquiries about reduced commission, the bulk of my clients pay my full commission, and understand it once I explain what I bring to the table vs. agents who are discounting their services. I believe there's a case to be made and clients to be served by a true full-service agent.
There will always be consumers who are willing to pay for full service, and there will always be consumers who are looking to save money. Clients for Nordstrom's, Nieman Marcus & Sackowitz, as well as clients for Wall Mart, Sam's Club & Costco.
But if you're going to charge those rates, you'd better be able to provide high-quality services. If not, they'll go down the street to the discount agents without a backward glance.
Speak up, home sellers - Those who haggle on commissions often get what they want: report:
By Amy Hoak, MarketWatch
Last update: 6:03 p.m. EDT Aug. 4, 2008
--- CHICAGO (MarketWatch) -- Don't be afraid to ask your real estate agent for a lower commission -- chances are, your wish will be granted without affecting the quality of service, according to a new survey by Consumer Reports.
Forty-six percent of the sellers surveyed by Consumer Reports for its September issue said they attempted to negotiate a lower commission rate, and 71% succeeded in getting one.
Plus, those who paid commission rates of 3% or lower were as satisfied with the performance of their broker as those who paid 6% or more, according to the survey results.
--- Because people are so successful, said Amanda Walker, senior project editor for Consumer Reports, "then clearly it should be something that you should try to do." That's especially true in today's challenging markets when sellers may need to cut their price, she added.
The results were based on a survey of 3,753 readers who sold or tried to sell a home, 4,029 readers who bought one and 7,368 readers who did both during the past few years.
--- In fact, people who paid higher rates were more likely to have regrets about the selling process, the survey found. Almost one-third of respondents said they should have been more assertive in negotiating the agent's commission.
That's not surprising, because haggling simply makes many Americans uncomfortable, said Steve Murray, editor of Real Trends, a real estate industry trends and research company.
"Americans are not born hagglers," Murray said. However, negotiating real estate commissions is much more commonplace that it was even 10 years ago, he added.
Still, in today's challenging real estate markets, the average commission rate is rising, he said. According to Real Trends' analysis, the average commission rate today is 5.2%, up from 5.02% in 2005. The rate was 6.1% in 1991, and had declined every year until 2006.
The rise in rates lately is logical, since homes are taking longer to sell and real estate agents need to spend more money and time selling a home, he said.
"When the cost and the time that it takes to market a home goes up, why would anyone expect that those providing that service would charge less?" Murray added.
--- That said, there's nothing wrong with asking for a lower rate, he said. And don't assume that an agent won't budge -- the Consumer Reports survey suggests they will, Walker said.
Broaching the topic
-- If the seller doesn't bring up the topic of negotiating commission, a real estate agent might do it for him or her, according to the National Association of Realtors.
In an NAR survey of sellers last year, 39% said that their agent brought up the topic and 31% said that they brought it up themselves -- and the agent was willing to negotiate, said Paul Bishop, managing director of research for the industry group.
Nine percent of sellers said they knew that the rate was negotiable, but didn't bring up the topic, he said. But 13% of sellers didn't know commissions and fees were negotiable.
The Consumer Reports survey also found:
* 71% of sellers were "very" or "completely" satisfied with their broker, while 12% said they were dissatisfied.
* 66% of those who used an agent to buy a home paid an average $5,000 less than the listing price. The 34% of buyers who didn't use an agent paid close to the asking price.
* 86% of those who put their homes on the market made a sale, while 8% eventually gave up and took their homes off the market.
--- The Consumer Reports survey also found that 82% of those who sold a home with the help of an agent received an average of $5,000 less than their original asking price, but nearly all of the 17% who sold their homes without an agent received about what they originally asked.
Many sellers who act without an agent may get what they ask for because the price is settled on with friends or family from the beginning, he said.
I applaud your false bravado ... but, the topic isn't about you -- it's about "Cash back from buyer's agent.."
You can charge anything you like, it's the American way ... 6%, 16%, 26%, it matters not ... I think you're getting confused between the word "profit" and the words "profit margin".
Not to hurt ones feelings, but using children in your post as a "profit allowance" is truly over the top, very unprofessional in any form, in any manor - and in any language...
If you're truly one of the honorable people in your industry ... then you shouldn't have any issues with consumers knowing that there "is" brokers out there that have, do and will continue making big margins in rate and huge mark-ups in closing costs and some agents benefiting greatly from it -- until they're caught .... or, they're turned in by agents like yourself.
Using words like illegal, unethical, monitored, tested is very nice "thank you" ..and makes for a good production number in Playhouse 90 ... the reality is, your own Detroit Mayor was thrown into jail "again" yesterday -- but you feel consumers should just make the biggest decision and the biggest purchase of their lives based on some words...?
According to today's Chicago Tribune article, by Mary Umburger (a local RE columnist), Redfin has had only a total of 1,500 transactions in their past two years. At the moment, they only show 1 agent on their website, currently working in the Chicago area.
"Redfin counts on the consumer doing a lot - emphasis on a lot - of online digging and not expecting much hand-holding from an agent.
When a buyer is ready to visit houses (initially just in Cook and Lake Counties), Redfin's salaried agents will show a limited number of properties [it doesn't say what LIMITED means... could be 6, 12, 18... I don't know]; if the consumer wants to see more, the amount of the commission rebate decreases. "
For those buyers who are willing to do the searching, and don't need the hand-holding, I think Redfin is a viable option. You may receive as much as 2/3 of the buyer's side commission, or perhaps slightly less, but still a nice return.
If you're one who needs a little more 'hands-on', a traditional full-service buyer's agent might be more in line. You're the only one who can make that decision.
Here's a couple of things you need to keep in mind:
Any rebate from your Realtor needs to be disclosed to your lender to avoid lender fraud.
The IRS says any rebate over $600 per year must be reported on a 1099, and you'll have to pay the taxes on the rebate. (Please verify this with your CPA or accountant.)
Everyone likes to save money, the quesion is: How much are you saving if you're being represented by someone who'll work for nothing?
Be careful, this is probably the biggest purchase you've ever made!
Took a day off to relax and came back for a good laugh with your response to my question. You can't seriously be making the argument that a businesses overhead is of no concern to the consumer. Your exact words were "To me, the consumer, youâ€™re costs are irrelevant." Are you serious? I understand that you don't care about them and you don't want to pay for them. However your wishes and desires on this are so far out in left field that it isn't even funny. I challenge you to show me one, just one business where the company absorbs all of the overhead and passes along only the costs directly related to the singular product or service they are selling.
A great example of this, is the cost of medicine. You can't honestly tell me that it costs $10-$20-$30+ per pill to create certain drugs. Absolutely not, what you are paying for is the cost of running the overall business. Airlines are another example. As a consumer if I fly from Minneapolis to Oxford so we can have a cup of tea, under your argument I should only have to pay those costs directly related to the actual flight that I take. All of the salaries of the employees, marketing costs, costs of other flights, etc. would be the airlines problem.
The thought that a business should pay its own overhead and only pass direct costs on to the consumer is completely laughable.
The funny part of all of this is that I agree with you on more than you may realize. The function of economics in the argument is of vital importance but alas, that is not what we were talking about. I also agree that our society (not just real estate agents) have a strong sense of entitlement and it drives me nuts. That said, I hung out a shingle and started a business. I provide a service and am very profitable in the services I provide. I am in no way entitled to my commission I must earn them at every turn. The issue that you and I disagree on is that you think that you should only pay me $X for the time that actually spend working for you directly and to heck with what I spend the rest of my time on.
John's logic makes no sense-there's no logic to it. Furthermore, this feeling of entitlement to someone else's compensation is appaulling. Does John ask his heart surgeon to kick back some of the money his insurance company is paying him because he thinks the doctor is making too much? I am not, BJ, Implying that my traing is as extensive as a surgeon...I'm attempting to provide an analogy. John and his agent should be absolutely embarrassed over their actions.
Don't get me wrong...commission negotiation at the listing table is fair game. The seller and listor must agree on a fee as the seller is paying it. It is none of the buyer's business how much their agent is being compensated by the seller.
Itâ€™s not that difficult to discern which one is really the proper perspective based on a value proposition. If we dissect the scenario by eliminating characters, what is the impact on value to the home? If we eliminate the buyer or the seller, the value of the transaction is also eliminated. You canâ€™t have a transaction without a buyer or seller. But what if we eliminate the agents? I know, I may get flack for suggesting that this transaction can take place in the absence of agents, but Iâ€™ll get to that in a moment. If there are no agents, and therefore no commission, and the seller would still agree to receive $376,000, which must have been a sufficient amount in his/her mind before based on the nature of the initial transaction, then where is that remaining $24,000? Itâ€™s in the buyerâ€™s pocket. So who is really paying the commission? The seller didnâ€™t get less for their house. They got the same amount that they agreed to previously, which is the value they needed out of the item they put on the market. So, in revisiting the original transaction, does that mean that adding agents to the equation actually increased the value of the home by $24,000? Thatâ€™s a stretch.
Perhaps one could argue that in using an agent, an individual could get more for the home? However, in this case, the seller didnâ€™t actually get more. He/she got the same amount. I know, thereâ€™s that pesky vacuum based thinking Iâ€™ve been accused of using before. Iâ€™m sure arguments can be made that perhaps the seller may have actually settled for less, in the absence of an agent representation, and here in lies the value. However, again turning that around, how does the seller obtaining an agent increase the value for the new home owner purchasing the house? Ah, it doesnâ€™t. So even after suggesting that the seller should pay a portion of that â€œadded valueâ€ back to the agent in the form of a commission, it is really at whose expense? The buyer. Without discussing the merit of this dynamic, itâ€™s very easy to see that the only person bringing a check to the transaction is the real one paying for the services. Yes, when a shop tallies its sales, it can compute what sales tax is due. However, can you really argue that the sales tax is paid by the shop? No. If I bought a $1.00 candy bar, and I paid $1.06 after sales tax, how can you argue that the shop picked up the tab? At the same time, can you also argue that the value of that candy bar was increased by the mere existence of the tax? Maybe you canâ€¦because evidently thatâ€™s what has been here.
Total commission paid by the seller: $24K
Net amount in seller pocket: $376K
This is equivalent to saying that house value of $376K and $24K commission is paid by the buyer.
In both cases, all parties (buyer, seller and agents) receive the same amount of money with absolutely no effect on the actual transaction.
It is just a fallacy to assume seller pays the commission. It is actually paid by the buyer but portrayed as "paid by seller".
For someone as well written as you appear to be, I would have hoped that you were equally as well read. Lets recap for a moment.
Art made the argument that real estate agent's fee's don't break down correctly on an hourly basis. I reminded him that real estate agents don't spend every hour on direct billable time so his math equation was skewed by his lack of understanding of the industry. I even conceded that real estate agents spend an inordinate amount of time on indirect activities, but alas you were too busy formulating your response to actually read the argument being presented. You then had the audacity to say that the arguments being presented in this post are without logic. Sorry friend, if you truly step outside of your personal bias and consider each argument as it is being presented you will see that there is plenty of logic here.
One thing that I didn't say that you presumed I said was that real estate agents are equal to architects, lawyers, doctors, etc. If you would have slowed down a bit and read, I was saying that their business structures are similar. They all have billable time that can be attributed directly to a client and they have time spent that isn't. Each is in a service based business where overhead and other indirect costs directly translate in the bottom line. Nothing more than to make the argument that while Art's math was correct ($25,000/$100 = 250 Hours) it failed in principle to consider the reality of any client service based business.
I was then shocked to read your statement that my overhead is not your problem. For someone who started out so well you really proved your lack of general business savy with that statement. Now, I will concede to you that in a vacuum, my overhead isn't your problem. You would then need to concede to me however, that businesses don't operate in a vacuum. Maybe you have an example for me, but I can't think of any business, large or small where overhead isn't built into the profit structure. Target Stores don't just eat the costs of keeping lights on any more than a doctor is going to donate back his time spent between appointments. Target builds the cost of electricity into each item they sell, architects build their indirect time into their fee and I build my overhead into my commission. Sorry friend, that's just business 101.
You keep saying that you will get the best price for me. Here is a simple test for you. I am interested in buying following house.
What do you think is the fair market value of this house ?
John, you do realize that it would be unethical for any agent, unless they are in a client relationship with you, to opine on the fair market price of any house. Especially on a public message board. How would you like it if you were the seller of this house?
Are these the "fees" you're referring to? I sure hope that companies aren't engaging in this, but it appears that some do. Ask up front on the "junk" fees, and just say NO.
1. I asked many agents if they can provide me the boundary of each school (not school district) and the corresponding MEAP scores. The answer was NO.
2. One agent told me if i rent my existing house, i could still keep HOMESTEAD status. Wrong and Illegal.
3. My previous full service agent (with no rebate) never showed on time. Many times, he didn't even come himself and just sent his wife to show the house who was clueless.
4. Some agents told me rebates are illegal. Wrong.
5. Some agents told me rebates are taxable. Wrong.
6. My previous full service buyer agent (with no rebate) told us initially that we don't have to pay any fee to him because he will be paid 3% by the seller. At the time of closing, he added $150 fee to be paid by us. When i protested, he said that it is his broker who is charging (not him). I won't tell you the name of agent but the broker was Coldwell Banker.
Well said. I agree.
If you believe that the end result of the transaction when you close will be the same regardless of who represents you, then commission rebate is the only concern upon which you must focus.
If not for the numerous times that I have seen the outcome of transaction be influenced by the representative agents involved, I might feel that way, too. Since I know that the negotiation skills of the agents can determine the sales contract price, the knowledge, skill and capabilities of the buyer representative would be paramount in my choice of an agent. You may have a number in your head that you are willing to pay. One representative may be effective in communicating that to a seller and sellerâ€™s agent, while another may fail. Sure, you donâ€™t have to buy if the seller does not come to your price, but do you want to just forfeit your opportunity to buy a property of interest or come up in price for the sake of a rebate? A great buyer agent cannot force a seller to accept your price, but do you want to know that you had the best shot at your goal?
Any of us who have been in the business for a whileâ€¦.regardless of location, can tell you numerous stories of how a transaction almost fell apart if not for the problem solving capabilities and contacts of the agents. Agents solve problems by bringing in outside contractors as needed to support repair requests or credits, and mediate emotional stresses and differences of opinions that can kill a deal.
While I cannot provide any specific input or guidance for any property in your market, there are plenty of great agents who can and will make a difference in your transaction. I suggest you interview several prospective buyer agents who are experienced and knowledgeable in your marketplace. If, after interviewing several, you donâ€™t believe they can or will add value to the transaction, then go with the rebate program. I suggest you directly ask some full service local buyer agents why you should hire them over a company that will give you a rebate. After talking with them, you will be prepared to make an informed decision right for you.
Deborah Madey - Broker
Peninsula Realty Group - New Jersey
** --- Home sellers can haggle over commissions
Consumer Reports study showed 71 percent who bargained got lower rates...
*** ---updated 6:16 p.m. ET, Mon., Aug. 4, 2008
NEW YORK - Donâ€™t be shy about haggling over what you pay your real estate agent.
A study released Monday by Consumer Reports found 71 percent of sellers who negotiated for lower commissions with their brokers were successful. But only 46 percent of sellers surveyed tried.
Those who paid commissions of 3 percent were just as satisfied with their brokerâ€™s performance as those who paid 6 percent, the study found.
Story continues below â†“
1% cash back. - http://addedvaluerealty.com
Cash back auction website - http://www.homecommission.com
Joining the conversation late here so please forgive me. I think your understanding of the real estate commission structure might be helped by considering the models of other professional services (architects, lawyers, doctors, accountants, etc.). In each of these businesses the professional has a certain amount of time that is billable to the client and a certain amount of time that isn't billable or directly attributable to client work, but necessary none the less. While realtors spend a disproportionatly high amount of time on indirect activities, you need to understand that there is more to being a realtor than the hours I spend talking to or physically with a client.
If you would indulge me a real world example for a moment. My real estate attorney bills at a rate of $300/hour. 50 hours a week (he's a work-a-holic) 50 weeks a year (2 weeks vacation) would mean that if he billed every hour, he would earn $750,000 a year. That would be a very outrageous income but he doesn't earn that much. There are many hours spent in a day where he cannot bill a client for the work being done. He markets his services, attends education, entertains clients, and on and on. None of those activities can be billed to any one client so they end up in the overhead category reducing the earned wage per hour.
From my experience in real estate I can say that I spend 3 hours indirectly working on the business (answering trulia questions, educating myself on the market, prospecting, etc.) for every hour that I work in the business directly with or for a client. When considering this, your argument than an agent earning $100 an hour for the time spent with the customer is overcompensated, fails because to run the business the agent needs to spend 3 more hours not working with the customer, meaning that they are really earning $25/hour which isn't a fantastic living at all. Then when you consider that all overhead is direct to the agent (dues, commission splits, taxes, gas, car payments, technology, etc.) the bottom line is considerably erroded. As with you, I only put into the bank what is on the bottom line.
Another thing to consider when looking at real estate services professionals is that their business is very similar to the other professions that I listed earlier with one major exception. The barrier to entry into the real estate profession is very low. While the operation cost, and liability structures are similar, the reward/compensation for real estate professionals is less (we don't earn anywhere near what a doctor or lawyer does).
Actually what you're seeing nowadays is full service realtors taking on 2 to 4% commish for full time services - total ...
The savvy ones would rather be working full time and seeing a flat fee or a $8,500 commish on a $420,000 sale than be back at the office wishing for that $25,000 on an "if come" ...
Lets get real...... if the real estate industry was a fair player not looking for the largest pay check we sellers would see a fair flat fee for a home sale. Not the percentage of home value pricing methodolgy that drives up commissions and loss of owner equity. Again the industry needs to reinvent itself or risk losing market share to discounters like Redfin and others. Hope you and others can lead the change with the vast amount of new technology coming online to reduce your time effort and fee charges.
Tony's example below of a $420,000 home earning a $25,200 commission begs the question how much service am I getting for $25K ? If realtors are getting paid $100 per hour which is way more that I make, the $25K fee would equate to 250 hours of realtor assistance. I have bought and sold five houses over the years and I can't think of any of my agents that spent 250 hours or even half that much time working with my property.
If agents averaged $50 per hour which is still more than most Americans earn they would need to work 500 hours to sell a house and earn $25K. Thats 13 forty-hour weeks. If we bounce the price of the house to $650K it now takes 780 hours to earn the $39,000 commission or 20 forty-hour weeks.
I am sure that I'll hear that it is split four ways and the individual agent gets 1/4 of that. Understand that ....but the real estate industry has determined that my sales fee should be split four ways equally. A business model that drives up the sales fee. In my work world that sounds like worker bee gets 50% and overhead boss get 50%. This need to pay a whooping 3% to overhead has drived up the cost of selling a home. I don't mind the agents making their piece but managemet is given too large a share.
Realtors answering this post have dutifully defended their side of the 3% commissions and their work effort which I still debate doesn't equate to 500 hours of dedicated work to one home or buyer in my example above. But how do you defend the other 3% of the commission going to management....What are they doing for each property listing or sale. If the answer is they provide office space and pay for heat perhaps we need to look at a business model where agents work from their homes all the time and eliminate the management fee. Seems REMAX has a decent business model if I understand it correctly. Realtors pay a flat fee to REMAX for office space. With far less overhead to pay you would hope the REMAX agents could offer lower fees to customers and come down from the standard 6%. But they don't....they see it as a way to keep the status quo and make bigger profits.
I believe the industry needs to reinvent itself to better serve customers at far lower costs. If not, I believe the 10 million realtors will have the same fate as the 10 million travel agents we once had on every street corner. Watch out .....the real estate equivalent of Expedia.com and Travelocity.com is fast approaching and it may be Redfin or similar.
You seem to have riled up the real estate professionals out there! I'm just a lowly mortgage guy, but I get to see firsthand the difference a good (and bad) agent can make to a transaction.
I don't want to paint a broad stroke and say that ALL the agents who work at a discount or offer rebates fall in the "bad" category, but all I'll say is that a TRUE professional properly values the service they provide. Purchasing a home is still one of the largest financial decisions you will ever make, so I think you need and deserve professional representation. You wouldn't hire a lawyer to defend you against a speeding ticket, but you sure as heck better have one if you're facing jail time. And my guess is you wouldn't want a "discount" attorney, but rather one with the knowledge and experience to help you win the case. Understand the comparison?
If the seller is paying a 6% commission to sell a $420,000 home then that is a $25,200 commission total. Normally the seller's side would get half, leaving $12,600 to the buyer's side. Of that, your agent would probably get 50% of that in splitting with his or her broker, so about $6,300. I'd be surprised if a true professional doesn't earn every cent of that based on the time they put in to identifying and showing you homes, lending their expertise and advice, helping negotiate a good price, and working with you, the selling side, and your lender to ensure a smooth closing
My guess is that if you are buying a $420k home here in Michigan than you are a professional at whatever you do and your time is valuable. You'll no doubt be busy with other things such as packing and setting up for the move, so unless you have an abundance of time to put into things then leave it to someone to handle it for you. Best of luck,
1. Search listing: I don't need any help as all the listings are online on public MLS, realtor.com, remax.com
2. Showing the house: This is only area where the door is only open to an agent. I can compensate a buyer agent on a hourly basis. May be $75/hour. So if the agent shows me 10 houses and each house takes 30 minutes. I am willing to pay $375 to agent.
3. Submitting the offer: All offers are standard and i can pay additional $75 to agent to do that.
4. Inspection : No help needed from the agent.
5. Re-negotiate after inspection: It is just like submitting another offer and i can pay another $75 to do that.
6. Closing : No help needed from the buyer agent.
Total time spent: 7 hours
Total wages: $75 * 7 = $525
Why do agents want $13000 when it is worth $525 ??