Will anything ever bring down real estate commissions
Long post so don't bother unless you are serious about this issue. There is no abridged version!
I am hoping my post here will encourage a reasonable non-troll discussion of what it would take for an across the board reduction in real estate commissions (aside from the government mandating a lower typical maximum commission than currently is the case of course).
I have been thinking about this for years and even more so since I became a real estate agent on a dar. I don't have any answers. Real estate commissions have softened a bit on the listing side, ie 2%, 1.5% or 1% but from what I can see it's not like clients are flocking to discounters. Clients still believe you get better service and will benefit from the supposed 'hidden strategies' and 'secret sauce' a 2.5% 'full service', 'top producing' agent will ostensibly provide. This is totally bogus I have found. On the buy side commissions are typically 2.5%. If you offer less then agents will shun your listing as people always try to maximize their own economic interest. Every 0.5% on a $1M property is $5K and on a $2M property is $10K. This is not pocket change.
As I have posted before, I have always thought that a listing commission structure of a flat rate for listing a property and then a higher % of the additional selling price above that as an incentive is the best possible arrangement. Why should I pay a % of the selling price if all I'd have to do is place a sign on the lawn that I would sell my house for well below market and therefore wouldn't need an agent at all because I'd have a line-up of people ready to buy?
For example, if properties comparable to yours in the area sell for $1.2M you know yours would sell in a NY second for $1M, then why not provide, say, a flat rate commission for the first $1M of sell price and then, say, 2.5% for any amount above that. That's a real incentive to do a bang-up job as you get 5 times the commission for every dollar above the $1M as you do for the first $1M. However, to my shock and horror I found out ages ago that that sort of structure is banned by REBBA, the current legislation governing real estate agents/brokers (and business brokers) in Ontario. Why? Obviously because of lobbying by the real estate industry. Oddly enough a commission structure which provides a disincentive is allowed, ie falling commission as the property price increases! WTF?
On the buy side there are agents giving cash-back, but again, clients believe no cash-back agents might do a better job. Because the buy side commission is pre-determined by the seller and sellers want to encourage buyer agents to market the home to their clients, they are loathe do reduce the commission. Sure the buyer might benefit from the cash-back but that does not change the cost to the seller if a successful transaction is concluded.
The stronghold MLS has on listings seems impregnable, although the stronghold on the data is loosening as a result of court decisions. Sure there are competitive listing marketplaces out there but you just don't get even a smidgeon of the exposure as you do with MLS. Sure there are low flat rate MLS listings available but you don't get the service you would from an agent that knows what they are doing. You can be as effective as a really good agent listing a home yourself with a flat rate MLS listing but the people who are willing to spend the time and effort or are not too scared to try it themselves are few and far between.
My beef is that commissions have more than doubled in the last 8 years while the work has even reduced in scope and effort due to technology. I became an agent as an amusing and profitable sideline for friends and family to escape having to pay these commissions. On the sell side I can list my properties and don't have to pay anyone 2.5%, not to mention running circles around so-called 'top producing' agents as I can really focus on what I am doing rather than spending a lot of my time marketing myself so I can get more clients. I won't even do a deal for someone I don't know. On the buy side all the commission accrues to me. However, not everyone has the time or wants to expend the effort to become an agent.
So any ideas on how the entire real estate industry can move to lower commissions? What will it take? I'm dumbfounded.
I am hoping my post here will encourage a reasonable non-troll discussion of what it would take for an across the board reduction in real estate commissions (aside from the government mandating a lower typical maximum commission than currently is the case of course).
I have been thinking about this for years and even more so since I became a real estate agent on a dar. I don't have any answers. Real estate commissions have softened a bit on the listing side, ie 2%, 1.5% or 1% but from what I can see it's not like clients are flocking to discounters. Clients still believe you get better service and will benefit from the supposed 'hidden strategies' and 'secret sauce' a 2.5% 'full service', 'top producing' agent will ostensibly provide. This is totally bogus I have found. On the buy side commissions are typically 2.5%. If you offer less then agents will shun your listing as people always try to maximize their own economic interest. Every 0.5% on a $1M property is $5K and on a $2M property is $10K. This is not pocket change.
As I have posted before, I have always thought that a listing commission structure of a flat rate for listing a property and then a higher % of the additional selling price above that as an incentive is the best possible arrangement. Why should I pay a % of the selling price if all I'd have to do is place a sign on the lawn that I would sell my house for well below market and therefore wouldn't need an agent at all because I'd have a line-up of people ready to buy?
For example, if properties comparable to yours in the area sell for $1.2M you know yours would sell in a NY second for $1M, then why not provide, say, a flat rate commission for the first $1M of sell price and then, say, 2.5% for any amount above that. That's a real incentive to do a bang-up job as you get 5 times the commission for every dollar above the $1M as you do for the first $1M. However, to my shock and horror I found out ages ago that that sort of structure is banned by REBBA, the current legislation governing real estate agents/brokers (and business brokers) in Ontario. Why? Obviously because of lobbying by the real estate industry. Oddly enough a commission structure which provides a disincentive is allowed, ie falling commission as the property price increases! WTF?
On the buy side there are agents giving cash-back, but again, clients believe no cash-back agents might do a better job. Because the buy side commission is pre-determined by the seller and sellers want to encourage buyer agents to market the home to their clients, they are loathe do reduce the commission. Sure the buyer might benefit from the cash-back but that does not change the cost to the seller if a successful transaction is concluded.
The stronghold MLS has on listings seems impregnable, although the stronghold on the data is loosening as a result of court decisions. Sure there are competitive listing marketplaces out there but you just don't get even a smidgeon of the exposure as you do with MLS. Sure there are low flat rate MLS listings available but you don't get the service you would from an agent that knows what they are doing. You can be as effective as a really good agent listing a home yourself with a flat rate MLS listing but the people who are willing to spend the time and effort or are not too scared to try it themselves are few and far between.
My beef is that commissions have more than doubled in the last 8 years while the work has even reduced in scope and effort due to technology. I became an agent as an amusing and profitable sideline for friends and family to escape having to pay these commissions. On the sell side I can list my properties and don't have to pay anyone 2.5%, not to mention running circles around so-called 'top producing' agents as I can really focus on what I am doing rather than spending a lot of my time marketing myself so I can get more clients. I won't even do a deal for someone I don't know. On the buy side all the commission accrues to me. However, not everyone has the time or wants to expend the effort to become an agent.
So any ideas on how the entire real estate industry can move to lower commissions? What will it take? I'm dumbfounded.
