Why are real estate agent commissions so high in the US?

[Yongming Huang]

I have watched several discussions, including David Greene's video, around the recent lawsuit against NAR and RE brokerages. Learned a lot but there is one thing I just don't understand.

If we look at the numbers, there are 1.3M - 1.5M agents nationwide and there are 5M - 6M transactions each year. So that translates to 3-4 transactions per agent per year. Obviously that's an oversaturated profession. So my question is why doesn't that drive the commissions down? 

I understand that RE agents provide a lot of value to their clients and they have their expenses, etc. But it looks like the plaintiff's attorney asked a legit question: Why the commissions in the US are 2 - 3 times higher than that in other countries? This is baffling to me, too. Can someone help me understand this?

[James Hamling]

@Yongming Huang for the inference of why do real estate agent's "make so much" let's follow the bouncing ball of the math to find out what "so much" actually is. 

Let's talk median U.S. home price: $410,000.00 

And "median" commission to list: 5.2% 

First know that 5.2% get's split; 2.6 for listing broker and same for buying(selling) broker. 

One needs to comprehend that in vast majority of cases there is (a) The Brokerage, such as KW, eXp, Remax etc etc. (b) Team and to that team leader (c) the actual agent. 

In a majority of cases the Team is who "farmed" the lead. That cost's $. They have to build and host a marketing machine. This is website, various ad's, persons running and managing the various platforms, ad's, running of such. persons be it donestic or VA's to respond to inquiries, perform follow-up task's. All this is $$$$ going out to turn these "raw" contact's into actionable leads. Some of the best rates of conversion are "as high as" 35% conversion. That means 65% of the work goes for nothing, NOTHING, zero revenue potential, just spent capital. Than, of that 35%, the highest rate I have seen is 78% turning into signed client's. Think on that, only 3/4 of 1/3, so that whole is getting way smaller. AND those don't always end in completed business either, and revenue only comes from achievement of conclusion.

So it is safe to say, the business has to pay for 100% of it's operations, from about 7% of it's intake potential client's. 93% are JUST an expense with NO revenue produced. 

So, to get that $410k listing, you spoke with 7 potential sellers, signed 1 other and worked it that expired not selling. And for that 7 you were in contact of discussing potential with 25 people, for a few hours each. And for that the team filtered through 100+ people. Which to get those had system that provided resources to 1,800+ website visitors etc.. 

So your listing is sold. Congrat's that's a $21,320.00 commission. But remember, split between brokers so for your side it's only $10,660.00.    But your Team handed you that lead and need's there 50% split to keep the staff employed and developing lead's to hand you. So now your at $5,330.00.    And your brokerage has there split bringing you too $4,530.50.    BUT, it does not end there. Your a 1099, so you have to pay your own tax's, so after allocating for that what you ACTUALLY get is $3,624.40

You spent 60 hours talking to and working with potentials that resulted in 0, to land on this 1 that DID result in income, and spent another 30 hours in total on this, making for 90 hours labor investment too achieve $3,642.40.   Or, $40.27 per hour. 

You navigated the legal complexities, negotiated like a hero, pressed to get your sellers there best outcome, and you made almost half as much as your CPA, an Electrician, nearly 2/3 what you could be earning if you did plumbing or painting as a living....... 

Reality is Real estate agent's, at median, make "as much as" $40.27 per hour. 

So I ask, is $40.27 hr some huge crazy expensive price for doing all the things for most people BIGGEST financial transactions of there life. Mind you real estate attorneys generally start around $300+ per hour. 

So what should they be at? $20hr, same as the person who carries your food? Is that how we value Real Estate Agent's today? On par with someone who retains what you say for 90 seconds and carries food for 40 step's?     Sorry, I forgot, we champion those for skill of carrying our food and give out tip's left right and center to them, and for r.e. agent's we vilify them saying why can't they do it for 3 ramen packet's and a sugar cube.......