Wow, thanks for a great and detailed comment. I’m not sure where to begin… but let’s start here.

Seems to me that your practice is a solid one, that offers consumers the choice. That 95% of them choose the back-end loaded commission deal is good to hear, in part because they had a choice.

But let’s zone in on this piece (because it’s repeated by other commenters):

Owners who know anything at all would not accept this fee structure because the agent has no incentive to get the job done… they’re already paid. That, and they’re paid such a small amount (which is why the seller chose this to begin with) that they have no money to actually market the property with. In the end, the home seller pays $1000 and the home often doesn’t sell… so in this scenario, the agent wins and the sellers lose.

The main issue appears to be that compensation for sales (as New Homes, Communities) mentions is that commissions motivate the salesperson, while flat payment does not.

Two points about this.

1. While this works for the seller, it simply does not apply to the buyer rep. If anything, the fact that you are on commission makes me wonder if you as my agent on the buy-side are in fact free from bias and are representing my interests properly.

I know there are agents and brokers out there who offer paid buyer representation, but for the most part, buy-side agency is a dual-agency or in-reality-seller-rep. So my question is, why don’t more brokers/agents offer flat-rate buyer agency to remove the apparent conflict of interest altogether?

2. While it may be true that commissions motivate salespeople, that actually works slightly differently than one might think. It is not always the case that just because a salesperson is on commission that she will be focused on maximizing value for the seller; in many cases, the salesperson is maximizing value for herself by under-selling the property.

At the full 6% commission, an additional $10K in sale price translates to $600. How many agents are going to put in the extra work, hold out for higher offers, market a little harder, etc. to get $600? As the saying goes, a bird in hand is worth two in the bush. This applies to commission salespeople as well. I have personally witnessed far too many salespeople in and out of real estate take the first offer on the table because it means saving two weeks of work for not a lot of gain. Is this really in the seller’s best self-interest? As you write yourself, 4 or 5% of nothing is still nothing. There is an incentive built in to straight commission sales to get a deal done, any deal, rather than waiting for the best deal.

Furthermore, the commission based sales does mean that lower-priced properties simply aren’t as attractive to sell as higher-priced properties, even if the work required is the same. This is at the heart of the problem, right? You can perform excellent, superlative work, whether my house is worth $100k or $1M. But you get paid 10x the commission for selling a $1M home as you would a $100K home — how does that payday translate to work performed? Is an agent posting 10 times as many flyers for a $1M house as he is for a $100K house?

I don’t think anyone with even the slightest bit of knowledge believes that being a real estate agent is “easy”. Becoming one is easy, to be sure, but staying one is extraordinarily difficult.

That does not, however, explain the oddities of real estate service pricing, and why more brokers and agents do not offer multiple payment options for the customer to design the package that makes the most sense for him.

-rsh

PS: BTW, it should be pointed out that in a per-hour time & materials basis, the agent can simply charge the client for the cost of marketing the property, and let the customer choose how much he wants to spend on what sort of marketing. So it isn’t necessarily clear to me why a flat-rate customer would always be working with an agent who has no money to conduct marketing.

PPS: Somehow, other professional services seem to survive just fine on flat pricing. What makes real estate so different?

Wow, thanks for a great and detailed comment. I’m not sure where to begin… but let’s start here.

Seems to me that your practice is a solid one, that offers consumers the choice. That 95% of them choose the back-end loaded commission deal is good to hear, in part because they had a choice.

But let’s zone in on this piece (because it’s repeated by other commenters):

Owners who know anything at all would not accept this fee structure because the agent has no incentive to get the job done… they’re already paid. That, and they’re paid such a small amount (which is why the seller chose this to begin with) that they have no money to actually market the property with. In the end, the home seller pays $1000 and the home often doesn’t sell… so in this scenario, the agent wins and the sellers lose.

The main issue appears to be that compensation for sales (as New Homes, Communities) mentions is that commissions motivate the salesperson, while flat payment does not.

Two points about this.

1. While this works for the seller, it simply does not apply to the buyer rep. If anything, the fact that you are on commission makes me wonder if you as my agent on the buy-side are in fact free from bias and are representing my interests properly.

I know there are agents and brokers out there who offer paid buyer representation, but for the most part, buy-side agency is a dual-agency or in-reality-seller-rep. So my question is, why don’t more brokers/agents offer flat-rate buyer agency to remove the apparent conflict of interest altogether?

2. While it may be true that commissions motivate salespeople, that actually works slightly differently than one might think. It is not always the case that just because a salesperson is on commission that she will be focused on maximizing value for the seller; in many cases, the salesperson is maximizing value for herself by under-selling the property.

At the full 6% commission, an additional $10K in sale price translates to $600. How many agents are going to put in the extra work, hold out for higher offers, market a little harder, etc. to get $600? As the saying goes, a bird in hand is worth two in the bush. This applies to commission salespeople as well. I have personally witnessed far too many salespeople in and out of real estate take the first offer on the table because it means saving two weeks of work for not a lot of gain. Is this really in the seller’s best self-interest? As you write yourself, 4 or 5% of nothing is still nothing. There is an incentive built in to straight commission sales to get a deal done, any deal, rather than waiting for the best deal.

Furthermore, the commission based sales does mean that lower-priced properties simply aren’t as attractive to sell as higher-priced properties, even if the work required is the same. This is at the heart of the problem, right? You can perform excellent, superlative work, whether my house is worth $100k or $1M. But you get paid 10x the commission for selling a $1M home as you would a $100K home — how does that payday translate to work performed? Is an agent posting 10 times as many flyers for a $1M house as he is for a $100K house?

I don’t think anyone with even the slightest bit of knowledge believes that being a real estate agent is “easy”. Becoming one is easy, to be sure, but staying one is extraordinarily difficult.

That does not, however, explain the oddities of real estate service pricing, and why more brokers and agents do not offer multiple payment options for the customer to design the package that makes the most sense for him.

-rsh

PS: BTW, it should be pointed out that in a per-hour time & materials basis, the agent can simply charge the client for the cost of marketing the property, and let the customer choose how much he wants to spend on what sort of marketing. So it isn’t necessarily clear to me why a flat-rate customer would always be working with an agent who has no money to conduct marketing.

PPS: Somehow, other professional services seem to survive just fine on flat pricing. What makes real estate so different?

Rarely do they choose the flat-fee, up-front option. Why? Because so many houses (especially in the current market) do not sell by the time the listing has expired. This is why so many “For Sale By Owner” or “Flat Fee” brokerages don’t become top sellers (if they even make it) in their respective markets. If you need to sell your home… sure, I’ll let you pay me $1000 to slap it on the internet and see what happens. I’ll even let you choose your own price and how many months it will be listed. Doing listing paperwork, snapping a few photos and uploading it all to the internet will take me a few hours at best, so why not? Owners who know anything at all would not accept this fee structure because the agent has no incentive to get the job done… they’re already paid. That, and they’re paid such a small amount (which is why the seller chose this to begin with) that they have no money to actually market the property with. In the end, the home seller pays $1000 and the home often doesn’t sell… so in this scenario, the agent wins and the sellers lose.

Your agent is supposed to be your advertising agency. I live in an area of Washington State where about 3000 agents are licensed to sell real estate currently. There are over 9000 houses for sale. How many of those do you think were in our newspaper last weekend? How many are represented in the realty magazines this month? A rediculously low percentage, that’s how many. Why? Because the color advertisement that I place on the back page of our real estate section most weeks costs me a little over $1000, and that ad only has room for six of my listings. Each real estate magazine that I’m in runs me about $1500 per month on top of that. Then there is the cost to direct-market to other agents who may have buyers for my properties. Then I pay my brokerage somewhere around $20k per year (franchise fees) plus desk fees of a few hundred dollars per month. Oh, and I market to get listings, too, at a cost of around $1k per month… then pay my nearly $800 per month for my family’s medical insurance… then my accountant… and then and then and then. Get it? We’re all self employed and pay our brokers a franchise fee for hanging our licenses with them.

It’s true tha the average home sellers look at us as though we are over paid. If real estate agents are over paid, tell me why, even in the good times, the failure rate for agents is about 95%. Find me another job where 95 out of a hundred people who try it can’t make it and are gone within a year. Most people think that this is an easy job… but it’s not. It’s not even a job. It’s a profession, and a real business that requires real capital, and our expenses are there whether your house sells or not. Now consider that most people think their house is worth $20-75k more than it really is, and you’ll start to see just a small portion of what it is to be a real estate agent. My business has a true cost of around $70k per year, maybe a little more. The average agent sells around 8 homes per year and earns $40-50k gross before paying taxes, medical and other insurances, advertising expenses, gas & auto depreciation, brokerage fees, you name it. What we do may look “easy” to the layman, but that’s not the reality. Ask one of the thousands and thousands (millions?) of people who “used to be a realtor”.

My practice is built around providing solid advice, an excellent marketing machine and the knowledge to get the job done. I, for one, know how to do it and am not going to “cheap sell it”. I turn down more listing than I accept because I know my market well enough to have a good, educated idea of what I can get someone for their property and am not afraid to say “no” to those with unrealistic ideas (about half of you). My rates are going up right now, not down, because as homes take longer to move my advertising cost per unit increases. Yes, there are plenty of other agents out there willing to reduce commissions and yes, they often tell the home seller that they can get tens of thousands more than the number I offered them and yes, finally, they often get the listing instead of me. A couple more “yes’s”… yes, they often call me in six months when their listing has expired, now ready to accept that I know what I’m talking about. And yes, I list it for the right price, make it look better online, market and advertise it considerably better than the last agent did and yes, I usually sell it (over 95% in my career, which few agents can claim).

Four or five percent of nothing is still nothing. You need to get an offer from a qualified buyer, and get that offer closed to owe any commission at all! Am I worth my six or seven percent commission? Yup. If you’re an agent… are you?

Rarely do they choose the flat-fee, up-front option. Why? Because so many houses (especially in the current market) do not sell by the time the listing has expired. This is why so many “For Sale By Owner” or “Flat Fee” brokerages don’t become top sellers (if they even make it) in their respective markets. If you need to sell your home… sure, I’ll let you pay me $1000 to slap it on the internet and see what happens. I’ll even let you choose your own price and how many months it will be listed. Doing listing paperwork, snapping a few photos and uploading it all to the internet will take me a few hours at best, so why not? Owners who know anything at all would not accept this fee structure because the agent has no incentive to get the job done… they’re already paid. That, and they’re paid such a small amount (which is why the seller chose this to begin with) that they have no money to actually market the property with. In the end, the home seller pays $1000 and the home often doesn’t sell… so in this scenario, the agent wins and the sellers lose.

Your agent is supposed to be your advertising agency. I live in an area of Washington State where about 3000 agents are licensed to sell real estate currently. There are over 9000 houses for sale. How many of those do you think were in our newspaper last weekend? How many are represented in the realty magazines this month? A rediculously low percentage, that’s how many. Why? Because the color advertisement that I place on the back page of our real estate section most weeks costs me a little over $1000, and that ad only has room for six of my listings. Each real estate magazine that I’m in runs me about $1500 per month on top of that. Then there is the cost to direct-market to other agents who may have buyers for my properties. Then I pay my brokerage somewhere around $20k per year (franchise fees) plus desk fees of a few hundred dollars per month. Oh, and I market to get listings, too, at a cost of around $1k per month… then pay my nearly $800 per month for my family’s medical insurance… then my accountant… and then and then and then. Get it? We’re all self employed and pay our brokers a franchise fee for hanging our licenses with them.

It’s true tha the average home sellers look at us as though we are over paid. If real estate agents are over paid, tell me why, even in the good times, the failure rate for agents is about 95%. Find me another job where 95 out of a hundred people who try it can’t make it and are gone within a year. Most people think that this is an easy job… but it’s not. It’s not even a job. It’s a profession, and a real business that requires real capital, and our expenses are there whether your house sells or not. Now consider that most people think their house is worth $20-75k more than it really is, and you’ll start to see just a small portion of what it is to be a real estate agent. My business has a true cost of around $70k per year, maybe a little more. The average agent sells around 8 homes per year and earns $40-50k gross before paying taxes, medical and other insurances, advertising expenses, gas & auto depreciation, brokerage fees, you name it. What we do may look “easy” to the layman, but that’s not the reality. Ask one of the thousands and thousands (millions?) of people who “used to be a realtor”.

My practice is built around providing solid advice, an excellent marketing machine and the knowledge to get the job done. I, for one, know how to do it and am not going to “cheap sell it”. I turn down more listing than I accept because I know my market well enough to have a good, educated idea of what I can get someone for their property and am not afraid to say “no” to those with unrealistic ideas (about half of you). My rates are going up right now, not down, because as homes take longer to move my advertising cost per unit increases. Yes, there are plenty of other agents out there willing to reduce commissions and yes, they often tell the home seller that they can get tens of thousands more than the number I offered them and yes, finally, they often get the listing instead of me. A couple more “yes’s”… yes, they often call me in six months when their listing has expired, now ready to accept that I know what I’m talking about. And yes, I list it for the right price, make it look better online, market and advertise it considerably better than the last agent did and yes, I usually sell it (over 95% in my career, which few agents can claim).

Four or five percent of nothing is still nothing. You need to get an offer from a qualified buyer, and get that offer closed to owe any commission at all! Am I worth my six or seven percent commission? Yup. If you’re an agent… are you?