Why are real estate agent commissions so high in the US?
Specialist · Galveston, TX · Member since 2018 · 13 posts · 14 votes
Why are real estate agent commissions so high in the US?
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Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
2y@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.......
87 Replies
- Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes2y
I recently brought up an interesting shift in the car industry in my business mastermind... Have you noticed how Mercedes Benz, traditionally a strong player in dealership franchises, is now moving towards direct online sales, the Tesla sales model.
From what I understand, the reason behind this move is pretty clear. With online sales and focused brand building, companies like Mercedes can forge a direct relationship with their customers. Not really a need for the middle man dealer.
And there's another trend, customers are really not into the whole haggling experience. This shift by Mercedes-Benz could be a sign of what's to come. They're sort of leading the charge in this new direction, and I think we might see the traditional dealership model and its commission structure start to fade away.
Of course, this change won't happen without a response. It'll be interesting to see how dealership lobbyists react to this shift. But one thing's for sure, this could be a leading indicator for other industries too, like real estate agents, to follow a similar path.
- Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 735 votes2y
Quote from @Bob Ritner:
The American Institute of Architects used to "recommend" fee structures for different types of architectural services. Two different supreme court cases ruled that this is an anti-trust violation and it it is illegal for architects to even discuss fee structures with each other. There were pros and cons to this, but the biggest outcome is that Architecture, while being very overhead intensive, education intensive and having significant professional liability is one of the lowest paid "professions". As an architect I think it was a blow to our income potential and had some other negative consequences, but as a consumer, it brought fees down and did not really reduce the headcount going into the profession. I am not sure why realtors coordinated fee structure has lasted this long without being challenged.
Special needs?
- Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 735 votes2y
Realtors are underpaid for what they do. This is just hate from the guru'd!
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Nate Marshall:
Quote from @Wale Lawal:
This is a very sensitive question @Yongming Huang but all I will say it that the barrier to entry as a Real Estate Agent is very low, hence the poor reputation for some agents.
The honest truth is that 20% of the 1.5M agents are the ones doing 80% of the business.
The remaining 80% of agents barely sell 1 house in 2years due to many reasons like lack of commitment to the profession, poor or average skills, improper training, lack of tools and mentorship to be a great agent, etc.
At the end of the day, you will always get what you pay for.
Saying that Agent commissions are too high in the United States is subjective and we can debate or discuss this for several hours.
Hope this helps.
Thank you
Low. Really? You do realize that they have to not only complete a 144 hour set of classes and pass a state exam, they have to pay for their marketing, office expenses, vehicle expenses and often work their way up in a brokerage.
Another idiot comment by an idiot!!! Total loser!!!
As a Broker, I advise agent's in drafting contract's, review transactions. And than advise Title agent's in how thing's will go, draft and submit contract's too the attorney's, who attorney's also draft contract's, review, advise etc..
Being a Real Estate Broker is scary close in the work done to what the attorney's do. Yet, the attorney's have no less than 4 years "training" just to start, and from there hundreds if not thousands of hours to get too proficiency running solo.
In contrast, 144 hours seems pretty dang low a bar.
In appraisal a person from 0 has to get similar hours/training to get 1st license level. But difference is newly licensed appraisers have an entry level licensing that kind of has built-in "training wheels", limiting scope of what they can appraise, and with a graduation of appraisal licensing requiring experience credentials and additional education tier's be meet.
Tax assessor's have the same.
Yet agent's go from waiting tables, complete 144 hours and *BANG* they can do anything/everything.... Well, that they can find a broker will let them which unfortunately if one look's around they will easily find a "home" that will let them do whatever.
Doesn't seem to make a lot of sense does it? One would think the persons actually doing the whole shebang of the transaction would have to at least have similar licensing to those just reviewing 1 aspect of it, the "fair market value".
As a R.E. Broker I would welcome real estate licensing looking like appraisal licensing with open arm's and an ear-2-ear smile, it would solve a great many issues. Not to mention make it so much clearer for consumers who there working with, what they know, don't know, do, don't do, what to expect AND comprehension in pricing as everyone get's the difference in paralegal fee vs attorney fee, etc..
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Lane Kawaoka:
I recently brought up an interesting shift in the car industry in my business mastermind... Have you noticed how Mercedes Benz, traditionally a strong player in dealership franchises, is now moving towards direct online sales, the Tesla sales model.
From what I understand, the reason behind this move is pretty clear. With online sales and focused brand building, companies like Mercedes can forge a direct relationship with their customers. Not really a need for the middle man dealer.
And there's another trend, customers are really not into the whole haggling experience. This shift by Mercedes-Benz could be a sign of what's to come. They're sort of leading the charge in this new direction, and I think we might see the traditional dealership model and its commission structure start to fade away.
Of course, this change won't happen without a response. It'll be interesting to see how dealership lobbyists react to this shift. But one thing's for sure, this could be a leading indicator for other industries too, like real estate agents, to follow a similar path.
This already happened, it's what eXp Realty did.
eXp Realty destroyed the traditional brokerage franchise model, it's very literally a "UN-franchise" model. And for what people call the "MLM" aspect, that's actually just eXp's shifting of the $'s that franchisee's generally get and giving it directly to participating agent's, for those who want to, if they want to.
And hot on the tail coat is now an ever growing list of knock-off's trying to steal the thunder.
- 2yHenry ClarkPro MemberDeveloper · Member since 2020 · 4k+ posts · 4k+ votes
I’m going to make an assumption your comparison is versus China agent commissions around 2.1%. Versus say 6 to 7% US.
You need to look at each comparison.
Last sale we did had to sign about 10 times. How many in China? Is there more or less issues to address?What is the advertising cost differences?
Are the agents commission % or salary based? Is there a cost of living difference for the agents? China is 49% of US.
China real estate market is imploding. Government is controlling commission or transaction cost to make real estate sales more fluid.In Belize commission rate is 10%.
My brother is buying a house in Italy. 4.4% interest rate with 30% down. 3 months earlier it was 1.5% interest and 15% down. He is near Pisa and Lucca so not up on a mountaintop. In Italy certain areas with declining population, the banks work with the cities and offer lower interest rates by cities.
Versus US with 5% down and say 7% interest. Where we have a house shortage.
In Italy and also in Belize you bargain to get all of the furniture, lawnmowers, tractors, boats, etc.as part of the price. - 2yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Longish story on use of an agent to sell a German condo.
I sold a condo in Germany. I received a recommendation for RE agent from both the bank and a family member and they were the same agent. Must be good, two out of two recommended this person. Commission was absurdly low compared to US RE commissions and highly recommended, how can it go wrong?
We meet at the condo with my translator. The RE agent looked like a homeless person looks in Southern Ca. Not shaven. Old clothing and shoes. I withhold signing to sell saying I want my lawyer to look over the contract. Nothing like the polished, slick agents of southern CA. Talked with wife she had same concerns I had.
I talked further with the family member about the agent. He says everyone in all the surrounding towns uses this agent and he used the agent when he had purchased long ago (maybe 15 years prior).
Fortunately my first foreign exchange student in now a lawyer for the German government and her husband is a German judge. I send her the contract. I tell her of the recommendations for this agent (bank and family member). I tell her my concerns. I discuss the low commission and his appearance. She tells me the agent works for the best RE company in Germany and it is their standard contract. She tells me that is the agency every agent aspires to join and that they are selective. She says he must be good.
I sign the contract and provide it to the agent. Agent drives up in a very nice car but steps out still unshaven and looking homeless. Our translator is not yet there.. The agent apologizes for his English stating he had not used his English since his days at university. He did not look like he had gone to university. He looked like he lived on the streets. His English was good. Exceptional for not having used it in decades. I felt comfortable signing; I had done good due diligence on the agent.
A few days later we go to his office to discuss price and other selling details. This is in a little town (Xanten). It only had one primary intersection. It is less than 50’ from the mostly pedestrian use town center. 2 of the corners of this intersection have banks. His office is one of these corners and is large. He has many property listings (maybe a couple hundred) posted outside his large office but ours was not posted. There were listings going out near 1 hour away from Xanten. We walk in to his office. it is an awesome office. He has a handful of support staff in an office space that could easily hold 5 times as many if they were in cubicle. We go over selling price and the other details. I ask when our condo will get posted outside and he says there should be room in a couple of days. I indicated I thought ours would be posted because we were using him. He told us he was the selling agent on all those listings and has quite a few waiting to be posted. He indicated he did not get many buyers from those posts, but had large walk by traffic (a very large percentage of those going to the town center walked by his office). I said if he had quite a few waiting that it could be a while before our listing would get posted posted. He indicated he was expect at least 6 closings that day and that was a low number. It explains how the commission could be so low compared to the US. Much greater volume but much lower commissions.
The condo closed in less than 2 months at the price indicated by comps.
We learned a lot in this transaction including not to judge by appearance (which we should have known).
My point is different countries do things differently. It is not right or wrong, just different. In Germany our agent has large volume and low commissions. I suspect he was compensated (take home pay) similar to top agents in the US.
If things change from the lawsuit then they will be different (definition of change) but not necessarily better or worse.
best wishes - Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes2yMeanwhile the lawyers who worked on this case probably took their customary 30-40% commission.
Quote from @Bob Ritner:
The American Institute of Architects used to "recommend" fee structures for different types of architectural services. Two different supreme court cases ruled that this is an anti-trust violation and it it is illegal for architects to even discuss fee structures with each other. There were pros and cons to this, but the biggest outcome is that Architecture, while being very overhead intensive, education intensive and having significant professional liability is one of the lowest paid "professions". As an architect I think it was a blow to our income potential and had some other negative consequences, but as a consumer, it brought fees down and did not really reduce the headcount going into the profession. I am not sure why realtors coordinated fee structure has lasted this long without being challenged.
- Specialist · Galveston, TX · Member since 2018 · 13 posts · 14 votes2y
In regards to what "other countries" I was talking about, a friend of mine just bought a townhome in UK, and she told me the typical RE commission is 1.5%-2%. Seller pays for the commission and that's all. Buyers usually are not represented.
It's easy to find a guide on how to negotiate RE agent fees in the UK. For example, here it says:"
- Go back to the more expensive agents, and tell them the others are offering lower fees. Tell them that you are expecting to pay only 1.2%".
@Dan H. Curious what is the percentage in Germany?
@Henry Clark is correct on the commissions in China. The most expensive one charges 1% from each side. But it's not just China.
I agree with @Carlos Ptriawan, I feel the way the US brokerage industry running the business is "heavy".
- Specialist · Galveston, TX · Member since 2018 · 13 posts · 14 votes2y
Quote from @Lane Kawaoka:
I recently brought up an interesting shift in the car industry in my business mastermind... Have you noticed how Mercedes Benz, traditionally a strong player in dealership franchises, is now moving towards direct online sales, the Tesla sales model.
From what I understand, the reason behind this move is pretty clear. With online sales and focused brand building, companies like Mercedes can forge a direct relationship with their customers. Not really a need for the middle man dealer.
And there's another trend, customers are really not into the whole haggling experience. This shift by Mercedes-Benz could be a sign of what's to come. They're sort of leading the charge in this new direction, and I think we might see the traditional dealership model and its commission structure start to fade away.
Of course, this change won't happen without a response. It'll be interesting to see how dealership lobbyists react to this shift. But one thing's for sure, this could be a leading indicator for other industries too, like real estate agents, to follow a similar path.
Do you think tech companies like Zillow and Redfin will disrupt the RE brokerage industry, and bring down the commissions, especially when considering the lawsuits could diminish NAR and traditional brokerages?
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Yongming Huang:
Quote from @Lane Kawaoka:
I recently brought up an interesting shift in the car industry in my business mastermind... Have you noticed how Mercedes Benz, traditionally a strong player in dealership franchises, is now moving towards direct online sales, the Tesla sales model.
From what I understand, the reason behind this move is pretty clear. With online sales and focused brand building, companies like Mercedes can forge a direct relationship with their customers. Not really a need for the middle man dealer.
And there's another trend, customers are really not into the whole haggling experience. This shift by Mercedes-Benz could be a sign of what's to come. They're sort of leading the charge in this new direction, and I think we might see the traditional dealership model and its commission structure start to fade away.
Of course, this change won't happen without a response. It'll be interesting to see how dealership lobbyists react to this shift. But one thing's for sure, this could be a leading indicator for other industries too, like real estate agents, to follow a similar path.
Do you think tech companies like Zillow and Redfin will disrupt the RE brokerage industry, and bring down the commissions, especially when considering the lawsuits could diminish NAR and traditional brokerages?
Zillow is actually make press releases regarding NAR, well basically they say they're well positioned to punish the traditional brokerage (Re/MAX and its friend) biz model.
What I do notice in many industry in America, all these private company tried to push their own pricing as "market" when the sector is new, and after years after one large company(or its cartel) monopolized the industry , the gov. step in and say "hey you guys, you are violating this and that, you are manipulating this and that"....
We will see different brokerage industry few years from today. - Flipper/Rehabber · Knoxville, TN · Member since 2023 · 47 posts · 20 votes2y
It is a free market. Some Realtors literally charge $500 for an MLS listing. I promise you will find them if you just type in discount realtors.
- 2yHenry ClarkPro MemberDeveloper · Member since 2020 · 4k+ posts · 4k+ votes
OP Uk commission around 1% versus US 6%
UK 725 people per square mile
US 94
You have to look behind the numbers.
- Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes2y
I can see that real estate agents are concerned that their pay may drop . I believe it will just weed out poor performers . Business models change over time as times change , The NAR has been basically the only game in town . It may be time for a change . With that change there will be winners and losers .
Amazon changed retail sales
Tesla changed the dealership model
The recent court decision will change the real estate buying and selling model
- Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 735 votes2y
Quote from @James Hamling:
Quote from @Nate Marshall:
Quote from @Wale Lawal:
This is a very sensitive question @Yongming Huang but all I will say it that the barrier to entry as a Real Estate Agent is very low, hence the poor reputation for some agents.
The honest truth is that 20% of the 1.5M agents are the ones doing 80% of the business.
The remaining 80% of agents barely sell 1 house in 2years due to many reasons like lack of commitment to the profession, poor or average skills, improper training, lack of tools and mentorship to be a great agent, etc.
At the end of the day, you will always get what you pay for.
Saying that Agent commissions are too high in the United States is subjective and we can debate or discuss this for several hours.
Hope this helps.
Thank you
Low. Really? You do realize that they have to not only complete a 144 hour set of classes and pass a state exam, they have to pay for their marketing, office expenses, vehicle expenses and often work their way up in a brokerage.
Another idiot comment by an idiot!!! Total loser!!!
As a Broker, I advise agent's in drafting contract's, review transactions. And than advise Title agent's in how thing's will go, draft and submit contract's too the attorney's, who attorney's also draft contract's, review, advise etc..
Being a Real Estate Broker is scary close in the work done to what the attorney's do. Yet, the attorney's have no less than 4 years "training" just to start, and from there hundreds if not thousands of hours to get too proficiency running solo.
In contrast, 144 hours seems pretty dang low a bar.
In appraisal a person from 0 has to get similar hours/training to get 1st license level. But difference is newly licensed appraisers have an entry level licensing that kind of has built-in "training wheels", limiting scope of what they can appraise, and with a graduation of appraisal licensing requiring experience credentials and additional education tier's be meet.
Tax assessor's have the same.
Yet agent's go from waiting tables, complete 144 hours and *BANG* they can do anything/everything.... Well, that they can find a broker will let them which unfortunately if one look's around they will easily find a "home" that will let them do whatever.
Doesn't seem to make a lot of sense does it? One would think the persons actually doing the whole shebang of the transaction would have to at least have similar licensing to those just reviewing 1 aspect of it, the "fair market value".
As a R.E. Broker I would welcome real estate licensing looking like appraisal licensing with open arm's and an ear-2-ear smile, it would solve a great many issues. Not to mention make it so much clearer for consumers who there working with, what they know, don't know, do, don't do, what to expect AND comprehension in pricing as everyone get's the difference in paralegal fee vs attorney fee, etc..
144 Hours is the entry level required in Colorado.
- Realtor · Dallas - Fort Worth Metroplex, TX · Member since 2016 · 1k+ posts · 925 votes2y
@Yongming Huang at least Realtor fees are disclosed. I love my lenders but there is plenty of money made in the financing that is not fully disclosed. It’s either fees, points or interest rate.
They are in the business of making money too.
As always just my opinion
- Realtor · Dallas - Fort Worth Metroplex, TX · Member since 2016 · 1k+ posts · 925 votes2y
@Yongming Huang again the buyer IS paying both commissions, in the financing of the purchase.
The issue is buyers many buyers don’t have the extra cash to pay out of their pockets.
Somehow it needs to be built into the financing. The question is - how to make that happen in this new climate.
As always just my opinion
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes2y
They might be high in your mind.
The majority of agents work for scraps.
The awesome brokers and agents can pick and choose who they work with because of their track record, exceptional skills, depth of knowledge in a specialty type of real estate.
Example I can tell someone with 25 million cash to get lost if they do not want to sign my agreement and go through the qualifications process. They are not forced to do anything. They can simply walk away and I can also walk away and choose not to work with them. I do not need every potential client just those that work well for a long term relationship where both parties respect each others time and skills.
When a broker or agent is already wealthy they can define when they will work and with whom. The first goal of a broker or agent should be to work for a plan that eventually gives them enough passive income to not have to live deal to deal.
Other countries are not the United States. Quit comparing apples to oranges.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
@Yongming Huang to your question, your not fully informed.
The truth of the fact is a person can sell there home for $0.00 in the U.S. because a person can choose to just sell it themself.
Or one could spend a few hundred and self-list on any number of platforms.
Or one could spend a few hundred too a few thousand and use a Discount Broker, be on the MLS, and all various forms of this.
OR or or, use any number of real estate agent's both REALTORS and non-realtors to list/buy and what fee is agreed upon, which range's literally all over the place from dirt cheap too arguably really expensive.
People right now, and for a great many years, in the U.S. have ALL of these options available. Nobody is forced to use any specific service.
The lawsuit had NOTHING to do with how much commissions are, it was solely about sellers feeling forced to offer buyer broker compensation. And arguing, retroactively, that they would have kept more $ on there property sale "IF" they hadn't paid that. Ignoring fact buyers would have paid LESS if buyers had to pay for buyer agent ON-TOP-OF the purchase price.
How do we know this? DATA. We see it happen over-and over-and over again in FSBO sales. We are talking decades of data. FSBO's simply get less on average. Listings where buyer's pay all fee's in addition get-less.
It's not an item for debate, it's a fact as shown and proven in the data.
The suit argued collusion in the big name brokerages and by NAR, that they were in secret agreeance to force sellers to offer such. And group think can look a lot like collusion, but it's not.
That's what's going on here, group think, long established and Brokers with hundreds of agent's under them directing them NOT to take a listing UNLESS seller does offer ___ as buyer broker compensation and guess what, they CAN do that, legally, it's the Brokers business, they can demand whatever there heart desires. They could demand new client's put there left foot in and shake it all about or "no service for you!". That's how a free economy work's.
It had nothing to do with what fee's are, was not meant to bring down fee's, it was sellers remorse, greed, saying it's all done but I don't want to pay the bill I agreed to at start.
All those sellers could have used a different listing service with NO buyers broker compensation, they choose not to. This is why NAR will fight it and NAR will win, eventually. Nobody "had to" use the service they did, they choose to.
Nobody has a "right" to use a specific product or service. Nobody has a "right" to a REALTOR.
- Investor · Fresno, CA · Member since 2016 · 222 posts · 237 votes2y
Quote from @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?
I'm not sure exactly why commissions are fixed the way that they are in the US, but I do know that the supply and demand equation you're using to determine valuation of commissions is off. Basically, yes, there is a large supply of agents relative to the demand for their services. But that is only true if you look at the total number of people with a real estate license and not the number of people who are qualified professionals with marketing that can get in front of clients to provide their services. The vast majority of business is done by the top 20% of agents. It is an easy industry to break into but a hard industry to actually succeed at because of this low barrier to entry. Almost anybody with a couple thousand dollars, a little extra time, and decent test taking ability can become a real estate agent.
I do think that the percentage only commission structure tends to be kind of weird. It does help to balance the higher cost of living in areas with higher property values, but at the extremes it can get really weird. For instance, selling a $50,000 house and making $1,500 is not a very attractive proposition for an agent, but selling a 1 million house and making 30,000 seems kind of unreasonable as well. I'm sure that the million dollar house requires more care and quality of service, but I don't believe that the time difference justifies the 20x income for basically the same service.
All that to say that I think the commissions were never really a big deal when homes were relatively the same price across the country outside of select markets. Over the last decade home values have increased dramatically and the disparity among markets is stark at times. In these markets the agents are now earning much more than they were. This is fair enough but when the income of the people transacting real estate has not changed to a considerable degree, it starts to feel unfair and you start to get push back.
There will always be a need for real estate agents, but as technology advances, I suspect that this profession will continue to experience ever increasing amounts of downward pressure on commission rates.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes2y
Commissions are not FIXED nationally. It's a free market. If that seller wants a certain companies services they can AGREE to the percentage, try to negotiate it, or walk away.
With a free market I as a commercial broker and owner of my company can get out of bed everyday and say ( I am not working for less than X percent ). The other potential clients can go elsewhere.
Brokers in the business a long time are in demand from those that want to pay for the best. There will always be options for cheapo customers. That's why some pay up for a Ferrari and others drive a Hyundai.
I disagree on the higher prices are less work. The more you go up in price the more smaller the buyer pool gets. You have to work harder to find the buyer that will pay the price the seller wants. In lower price ranges the buyer pools tend to be larger and many pay cash. Those buyers are not having to do 1031 exchanges most times.
In residential as an example the higher end houses tend to sit on the market longer and more of them do not sell at all. So those brokers and agents often eat very high marketing and open house costs and hope to profit out in the end just like an investor would have investments that break even, lose money, make some money, and do really well. The buyers of the move up houses often have to sell their house so makes for a more complex puzzle the broker has to solve.
This forum is more investor based where purchases are made more on numbers than emotions. For a family choosing to live in a home it is numbers based to a degree but more emotionally based purchase.
- Specialist · Galveston, TX · Member since 2018 · 13 posts · 14 votes2y
Quote from @James Hamling:
@Yongming Huang to your question, your not fully informed.
The truth of the fact is a person can sell there home for $0.00 in the U.S. because a person can choose to just sell it themself.
Or one could spend a few hundred and self-list on any number of platforms.
Or one could spend a few hundred too a few thousand and use a Discount Broker, be on the MLS, and all various forms of this.
OR or or, use any number of real estate agent's both REALTORS and non-realtors to list/buy and what fee is agreed upon, which range's literally all over the place from dirt cheap too arguably really expensive.
People right now, and for a great many years, in the U.S. have ALL of these options available. Nobody is forced to use any specific service.
The lawsuit had NOTHING to do with how much commissions are, it was solely about sellers feeling forced to offer buyer broker compensation. And arguing, retroactively, that they would have kept more $ on there property sale "IF" they hadn't paid that. Ignoring fact buyers would have paid LESS if buyers had to pay for buyer agent ON-TOP-OF the purchase price.
How do we know this? DATA. We see it happen over-and over-and over again in FSBO sales. We are talking decades of data. FSBO's simply get less on average. Listings where buyer's pay all fee's in addition get-less.
It's not an item for debate, it's a fact as shown and proven in the data.
The suit argued collusion in the big name brokerages and by NAR, that they were in secret agreeance to force sellers to offer such. And group think can look a lot like collusion, but it's not.
That's what's going on here, group think, long established and Brokers with hundreds of agent's under them directing them NOT to take a listing UNLESS seller does offer ___ as buyer broker compensation and guess what, they CAN do that, legally, it's the Brokers business, they can demand whatever there heart desires. They could demand new client's put there left foot in and shake it all about or "no service for you!". That's how a free economy work's.
It had nothing to do with what fee's are, was not meant to bring down fee's, it was sellers remorse, greed, saying it's all done but I don't want to pay the bill I agreed to at start.
All those sellers could have used a different listing service with NO buyers broker compensation, they choose not to. This is why NAR will fight it and NAR will win, eventually. Nobody "had to" use the service they did, they choose to.
Nobody has a "right" to use a specific product or service. Nobody has a "right" to a REALTOR.
Hi James, let's see about this. Are there alternative ways to sell a house? Yes, of course. No doubt about that. But the market shares of those alternative choices matter. Specifically, what percentage of transactions has commissions in the 5%-6% range? 90%, or maybe 95%? We are talking about the normal here, not about the outliers. Similarly, when I say the fees in the UK are around 1.5%-2%, I'm not saying there are no cheaper or more expensive options. I just want to compare apple to apple.
From the earlier discussions, I see why brokers simply cannot offer lower fees. Their expenses are high, so they have to have commissions at a certain level to make money. I understand that. I'm not against brokers or pointing fingers at anyone. I genuinely want to find the rationale behind the 5%-6% commissions.
David Greene's explanation for this is that "probably 95%-98% of the times that a Realtor helping clients, they don't get paid for...You have to compensate them enough so they make enough to support themselves for all the people that are not paying them." This brings my next question: Is the situation in other countries any different? Agents in any country can not close on every prospect, right?
Another argument I constantly hear is that we have to have buyer's agents because if not, buyer wouldn't be protected. Then how come most buyers in the UK don't hire an agent? Are they seeing more headaches and problems in their model?
I think the real question is, is our current model really the best one in the world?
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes2y
It's not a perfect system the real estate but it's a pretty good one. No system is perfect in any industry, any government, etc.
People went from industry standard words to normal now. There is no normal.
I could drive down the street and find 5 different burger brands all charging close to the same price for a cheeseburger ( one is awful, one is okay, one is amazing). They all charge similar price because costs are about in same range to operate but the QUALITY of the product and service varies.
So consumers go out and research when they want to make a choice or decisions and THEY decide what to spend their dollars and time on. They own their decision because they did the research and made the choice. Sometimes it might work out how they want, other times differently, other times not at all.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Yongming Huang:
Quote from @James Hamling:
@Yongming Huang to your question, your not fully informed.
The truth of the fact is a person can sell there home for $0.00 in the U.S. because a person can choose to just sell it themself.
Or one could spend a few hundred and self-list on any number of platforms.
Or one could spend a few hundred too a few thousand and use a Discount Broker, be on the MLS, and all various forms of this.
OR or or, use any number of real estate agent's both REALTORS and non-realtors to list/buy and what fee is agreed upon, which range's literally all over the place from dirt cheap too arguably really expensive.
People right now, and for a great many years, in the U.S. have ALL of these options available. Nobody is forced to use any specific service.
The lawsuit had NOTHING to do with how much commissions are, it was solely about sellers feeling forced to offer buyer broker compensation. And arguing, retroactively, that they would have kept more $ on there property sale "IF" they hadn't paid that. Ignoring fact buyers would have paid LESS if buyers had to pay for buyer agent ON-TOP-OF the purchase price.
How do we know this? DATA. We see it happen over-and over-and over again in FSBO sales. We are talking decades of data. FSBO's simply get less on average. Listings where buyer's pay all fee's in addition get-less.
It's not an item for debate, it's a fact as shown and proven in the data.
The suit argued collusion in the big name brokerages and by NAR, that they were in secret agreeance to force sellers to offer such. And group think can look a lot like collusion, but it's not.
That's what's going on here, group think, long established and Brokers with hundreds of agent's under them directing them NOT to take a listing UNLESS seller does offer ___ as buyer broker compensation and guess what, they CAN do that, legally, it's the Brokers business, they can demand whatever there heart desires. They could demand new client's put there left foot in and shake it all about or "no service for you!". That's how a free economy work's.
It had nothing to do with what fee's are, was not meant to bring down fee's, it was sellers remorse, greed, saying it's all done but I don't want to pay the bill I agreed to at start.
All those sellers could have used a different listing service with NO buyers broker compensation, they choose not to. This is why NAR will fight it and NAR will win, eventually. Nobody "had to" use the service they did, they choose to.
Nobody has a "right" to use a specific product or service. Nobody has a "right" to a REALTOR.
Hi James, let's see about this. Are there alternative ways to sell a house? Yes, of course. No doubt about that. But the market shares of those alternative choices matter. Specifically, what percentage of transactions has commissions in the 5%-6% range? 90%, or maybe 95%? We are talking about the normal here, not about the outliers. Similarly, when I say the fees in the UK are around 1.5%-2%, I'm not saying there are no cheaper or more expensive options. I just want to compare apple to apple.
From the earlier discussions, I see why brokers simply cannot offer lower fees. Their expenses are high, so they have to have commissions at a certain level to make money. I understand that. I'm not against brokers or pointing fingers at anyone. I genuinely want to find the rationale behind the 5%-6% commissions.
David Greene's explanation for this is that "probably 95%-98% of the times that a Realtor helping clients, they don't get paid for...You have to compensate them enough so they make enough to support themselves for all the people that are not paying them." This brings my next question: Is the situation in other countries any different? Agents in any country can not close on every prospect, right?
Another argument I constantly hear is that we have to have buyer's agents because if not, buyer wouldn't be protected. Then how come most buyers in the UK don't hire an agent? Are they seeing more headaches and problems in their model?
I think the real question is, is our current model really the best one in the world?
It's an act of insanity trying to compare U.S. Real Estate "median" commission to other countries. I say this as a person who's done, and is currently, involved in things in other countries.
First, the most obvious; it's a different COUNTRY. The laws are different, financing and banking is different, how mortgages are made, packaged, securitized, sold, is all different. Literally every aspect is DIFFERENT.
So as capitalization changes, risks change, law's change, everything else adjusts in same vein.
You can't ignore all the other changes and pick 1 thing like commissions to compare and say look at difference and ignore all else.
Talk was on Germany before. Ok, well were you aware the "average" income tax on people in Germany is around 40%? Things are DIFFERENT.
So you will not find 1 bit of intelligent meaning, or actionable anything, saying in a vacuum "agent's in this country charge ___, agent's in that country charge ___". Look at price of daycare country to country, that's different too. You name it, things are different country to country, because it's a different country, different law's, systems etc..
And with that there is no such thing as "the best in the world" because as long as different countries have different systems, different governance systems, things will be different. China is a plutocratic communism, North Korea a Monarch Communist system, Even the UK which many like to think is so similar to US is actually radically different.
About closest one can compare to the U.S.'s Socialist Republic structure is Greece, where founder's took inspiration from in designing and forming this form of governance. And even Greece is WAYyyy different in legal system than U.S. now.
The U.S. arguably has the #1 biggest lawsuit "industry" by far of any nation on earth. That means all that legal risk carried in any business operation. That's unique factor to U.S..
Look at Divorces in U.S., they are very costly to people. Now let's look at Scandenavian countries where people are not allowed attorney's in divorce, especially with kid's, and there is no big crazyness in things. Or in Greece where Judge's can call there own witness's and defend the best interest of the kid's as matter of national/state importance.
It's different, everything around it, different.
CONTEXT..... this whole thing comparing vs other countries is taking things WILDLY out of context.
Did you know the legal age to drink alcohol in Germany is 16? How about that, what would happen vs U.S. at 21? Obviously the legal system is radically different.
And it's not complicated on agent fee's in U.S., you have well over 100k different brokers COMPETING against each other. If there was a radically cheaper way that consumer WANTED in mass, it would happen. When you have over 100k service providers fighting against each other for the same business, it drives things to the best offering potential.
You want to argue "medians" well how about this, if cheaper is so much better WHY are people in the U.S. NOT using the readily available CHEAPER alternatives in mass?
Nobody seems to be asking this, just ignoring the obvious. Why DON'T people use it in large part?
So duh, what will happen when force the services of choice, to be more like the ones people DON'T choose? Surprise-surprise, people are going to complain it suck's, that they don't like it, they want something different.......
It's stupidity-squared. It just is. Entitlement ran wild.
Did you know most things you buy in life at any store have no less than a 40% margin on them? From your bread too your auto. So how is 2.5% GROSS margin something "big" and crazy?
Again, put things in CONTEXT. 5% is NOT 5% to "a" agent, that's for BOTH sides Brokers AND underlying agent's. 2.5% per side. 1.25% per person if want to view that way. 1.25% GROSS margin that business then has to pay all expenses of operations, to HOPEFULLY net as much a 0.7%, LESS than 1% net!
No other industry in existence in U.S. operates with such a tiny margin that isn't gargantuan in it's corporate size and volume. I bet Walmart isn't even at less than 1% net, why isn't everyone flipping out that Walmart is "colluding" for higher prices on product's in it's stores. Because they are, Walmart directs what those prices will be don't they.
Your gas, more than 1% net. The food you eat WAY more than 1% net.
Why are you not comparing the price of a burger and chips vs that in Thailand? I can get a great burger and chip's in Thailand for $1.40 U.S.. Why aren't we on that comparison?
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