Yep you read right, generally the whole deal is done for 2-3%.

Fees used to be fixed by the government but the entire industry has been deregulated. The race to the bottom resulted in fees around 2 – 3% all up. If there is an agent introducing the buyers there is no set formula for how the commission is split but it is usually 60/40 ish (in favour of the selling agent).

One can work as a buyers agent and charge them directly.

I suppose the only way to compare them is to look at the actual cost of the product though. The median price for a home here in Perth, W.A. is roughly $450 000 AUD. I don’t know what prices are like in the states. At that price I would be charging 3%. I’m in a bit of a higher end market though so properties do start achieving one million and up and that is where I’d charge 2%. But since its all deregulated agents can charge whatever they like.

I’m not sure how to elaborate on how our system works though, I expect its probably very similar to yours but I haven’t really got a clue of how you guys operate…

By the way, everyone keeps talking about the 6% system, but I think the average is much lower than that in most areas. I’m an ex-RE/MAX agent, and I know they were one of the first companies where agents really started to cut their commissions, though no one likes to talk about it. They gave their agents that freedom, and many of them ran with it and offer all kinds of discounted rates. Not saying which side is better or worse, just mentioning the facts, as I don’t believe the “6% system” really exists any more (on average).

Problem is we sell homes for people for more than one reason. I recently sold a house for a woman who was pregnant and the actual sale price was less of an issue than making sure we could arrange for her to be (financially and emotionally) where she needed to be before the baby arrived.

How do you quantify what I helped her through? That peace of mind and stress off her shoulders was invaluable to her (I’d like to think ). However in Australia commissions are a lot less usually somewhere between 2 + 3%….

Good article but until you can find a way to quantify such experiences as the one mentioned above to a monetary level you’ll probably never find an answer. (And I doubt that’ll happen, its like defining living standards)

Unfortunately, not everyone touts their knowledge level because not all agents have the necessary knowledge level to be proud of.

Preface: Our profession does need a makeover and many of us are continuing to improve our value proposition but there are a couple of big assumptions used in the article to draw some unconvincing conclusions here:

#1) All transactions include a 6% broker commission.
Not sure about everyone else, but 6% listings are not the norm for any transaction that I am familiar with. 6% is more like a starting point. Therefore, the authors may have needed to read more than the FSBO website to gather data on how much Realtors charge for services. Where else could they have gotten this data for 15,000 transactions? Nowhere except, The HUD closing statement. Anywhere else is just speculation. As a broker, is there any firm averaging 6% GCE? (3% for each side)

#2) All of the FSBO transactions were totally brokerless.
An FSBO’er may be able to list a house on the MLS for $150 but what do they pay when a Broker comes calling with a willing buyer? 2.5%? 3%? 4%?
I’ll show FSBO properties if the house seems to be a comparable choice. However, I won’t do it unless the buyer has promised to pay my fees or the seller has agreed, in writing.

And, for the following reasons, FSBO does not scale to the masses. DIY Sellers and DIY buyers love to haggle with each other. Just like there are those who like to yard sale. In my experience, most buyers have no interest in this. Why do buyers hate it so much when the sellers do not leave the property during viewings? Further, is this uneasiness supposed to go away because the home is FSBO and not broker listed? I think not.

One thing that the study doesn’t seem to quantify is the opportunity cost the sellers gained by not having to deal with the minutiae of marketing, contracts, coordinating … knowing whether the home inspector the buyer hired is worth the paper the inspection report is written on and whether to respond in kind …

It’s often about “making more money” but more often it’s about “getting the job done.”

Take this example:

Recently at a closing I asked my client, “was hiring me worth it?” His answer surprised me a bit. He said, “I don’t know; everything seemed to go so smoothly that I didn’t really have a chance to evaluate your skills.”

To my ear, that is the ultimate affirmation of value.

On the other hand, a recent seller said, after we were nearly 20 days past closing and I was pulling everything I could together in order to just get the damn thing closed due to the fault of the other side, “you’re really earning your money on this one.” Given the choice, I guarantee you that the second seller would have gladly paid double in order to have had the experience of the first seller.

I echo everything John said –

They call agents for these reasons:

- They think they’ll get more traffic through the home, giving them a better shot at selling it quicker.
- They won’t have to deal with the day-to-day hassle of selling a home.
- They don’t completely understand the process or the paperwork involved.
- They just don’t have the time to handle the sale of their home.

A challenge with studies such as this is that there is no quality control for the product – the product being the Realtor. If you could ensure that seller X in San Diego received the same, competent representation as Seller Y in Fargo, then you’d be onto something.

Additionally, you’d have to ensure that the Sellers were equally unemotional, detached and reasonable.

Good luck with that.

If a network emerged that made the process simple, reduced hassle, & delivered same reach as MLS, 6% regime would crumble. Flat Fee is interesting as a concept. Efficiency trumps all.

@Rob, Have you seen ANY research or studies published from NAR on this topic?

@Michael, understand risk-shifting concept but I don’t buy it. If an agent has a 85%+ chance of selling a home that he/she lists on the MLS, are they really taking on a great deal of business risk? Enough to justify a 6% commission rate?

Plus, the consumers decision model around risk is set at a paltry $150 (in this study). A rather insignificant amount to a seller considering which network/model to engage with. How much risk is really being ’shifted’ to the agent?

Great subject….

We coach Realtors…
…..literally, 1000’s of Realtors are enrolled in one of our coaching programs.

Recently we held a teleconference where we discussed this very subject.

Specifically, we asked those in (virtual) attendance how many would prefer to work on an hourly basis…or a flat fee basis..vs. the traditional commission basis (6% etc)

(In no way was this a scientific sampling…)

90% + in attendance said they would be thrilled to work on a flat fee basis…and not have their fee tied to the outcome…in other words, they would be paid for the service/ their time and effort. In essence, the same way attorneys and other service professionals are paid.

From an agents perspective…being paid for their time would…in most cases…result in a HUGE increase in income. For those not in the real estate industry please understand that despite with you might believe, selling real estate…and doing it well, is not easy. Most Realtors are 100% commission based. No sales=no paycheck. How many of you reading this would ever consider working on 100% commission?

The 10% (ish) that wouldn’t want to work on a flat fee/ hourly basis were those agents who were successful at a high level. In other words, the true top producers who know how to work hard and get results ….like the current compensation model.

Why is the 6% model still alive (and well)?

Because homeowners are willing to pay for the service and see value in it. If they didn’t the model would be dead. Additionally, how many sellers (or buyers) would be willing (and able) to pay a Realtor on a non-commission basis? Not many.

Sellers have the advantage in that they get the agents time for free…until the home sells.

This study is based on home sales data from one of the peek years for the real estate bubble. ANY home sold for multiple offers from 05-07. If they do the research in this market…they will find that the advantage is cleary with the seler who lists their home with a Realtor. Add to the mix the fact that millions of homeowners are upside down in their homes and will need the services of an agent who knows how to do a Short Sale (where the fee is paid by the lender) and the relevance of an agent becomes even more obvious.

Hope all of this helps!
Tim (and Julie) Harris
http://www.TimandJulieHarris.com
http://www.HarrisRealEstateUniversity.com

-rsh

PS: I still think there needs to be more studies/research by the Big Guys in our business.

1. commission @ x%
2. shared risk (retainer + commission)
2. hourly rate + expenses with retainer up front (in which, the Seller ‘typically’ saves thousands of dollars)

A small percentage will chose #2 and even smaller 3.

In a survey the rational mind takes over and of course no sane person would pay more money for the same service (choose #1). In real life, with real Sellers, implicit emotions win and whether they can express it or now, their *actions* much more accurately point to the truth.

My guess at what that emotion is (fear of loss / risk-shifting?) could be off, but I trust live market testing more so that survey results.

Finally, I can’t let this go without giving you a hard time:

because when trained economists who know their statistics say, “we controlled for variables”, I don’t know that a layman saying, “Yeah, but that doesn’t work” is going to be much of a rebuttal.

really? Do you mean the same trained economists that created the credit bubble? Or the NAR trained economists that in 1997 were still telling the public ‘it’s always a great time to buy’?

I’ll take @Johns layman experience based on hundreds of listing appointments over all the unemployed trained economists on wall street.

Thanks from prompting a lively debate.