Real Estate Commissions
The National Association of Realtors (NAR) in conjunction with the Swanepoel/T3 Group authored the DANGER Report (2015) that identifies multiple threats that will impact the real estate industry. The report reveals the thinking of 70 industry leaders and over 7,500 brokers and agents from across the country. The following is an excerpt from the report that highlights a significant threat to commissioned real estate agents and a great opportunity for home sellers and buyers.
A2- Commissions Spiral Downwards
A variety of powerful forces will exert significant downward pressure on real estate commissions.
Scale 1 – 5 (1= 10% chance, 5= 100% chance)
Index: 87.5 out of 100 (Critical concern for the Real Estate Industry)
“Home buyers might not always want to use a
real estate agent, but most think they have to.
What happens if their perspective changes?”
Consumers are definitely becoming more motivated to find an alternate solution, and a growing new generation of brokers and agents are exploring a legion of new business models and pricing models that will most likely become commonplace……….
The continued rise in home prices has facilitated the elevation of real estate earnings based on commissions.Those earnings have not gone unnoticed by consumers, who are responding by placing increased pressure on real estate agents to reduce their commission rates. As a result, many fear a gradual downward slide or a realignment of fees as charged in other countries in the world.
WORLD REAL ESTATE BROKERAGE FEES
According to a report by the International Real Estate Review, real estate brokerage fees around the world are:
United Kingdom…………….. 1 – 2%
Singapore………………………. 1.5 – 2%
Netherlands…………………… 1.5 – 2%
Australia……………………….. 2 – 3%
and in the United States 5-6%
Real estate home sellers and buyers are saving thousands of dollars by paying direct or not paying a % commission to a real estate agent. Fixed fee compensation or alternative models are consumer preferred. Save money don’t pay a real estate commission.
Read the full report online at http://www.dangerreport.com/
The Home Buying Process
- Get Personal Finances in Order
- check credit score
- prepare and organize financial profile or PFS- Income and Expenses/Assets and Liabilities
- Meet with a Lender
- Interview mortgage brokers, credit unions and banks
- Determine how much home you can afford
- Get Pre-approved
- Start a Home Search Online
- Create a list of home expectations and needs
- Visit Zillow.com
- Visit Realtor.com
- Request a showing appointment with the listing agent-visit home and neighborhood
- Identify a Real Estate Attorney
- Review loan materials
- Review contracts
- Make an Offer
- Home Inspection
- Sign Purchase and Sale agreement
- Confirm Mortgage Commitment
- Final Walk Through
- Home Closing- formal signing of closing documents
- Move In
- In 2015 a commissioned real estate buyer agent is neither required nor desired by a buyer to purchase a home.
- Don’t have a buyer agent, many home sellers will discount the Multiple Listing Service (MLS) list price- money they would have otherwise paid to the buyer agent. Buy Direct and Save.
It’s nearly impossible to identify a survey that suggests a major concern for a home buyer is finding the right buyer agent. This result either presupposes all buyer agents are equal or, more to the point, a buyer agent is not a necessity. Before the internet, a buyer agent was needed because the buyer agent controlled all the home listing information and it was the only way a home buyer could learn about a property for sale. However, in 2015, Zillow.com, Realtor.com and other online companies have diluted the need of the buyer agent by making home listing information available to the general public, at no cost.
If you are in the market to buy a home follow the above home buying steps and pay below the MLS list price.
Only a true friend (that’s also a real estate agent) will tell a home buyer the truth, it’s not necessary to pay a real estate % commission. A principled buyer agent will agree to work for a fixed or flat fee payment. Paying a fixed or flat fee (not a % commission) makes better economic sense for the home buyer. Did you know when using a real estate buyer agent that charges a % commission, the more money you pay to buy a home, the more money your buyer agent makes? That’s a definite conflict of the buyer’s interest. You are paying for representation that makes more money if you spend more money. Huh? But that’s the truth. Subsequently, unethical buyer agents steer home buyers away from homes not offering a satisfactory real estate commission.
Home buyers care about buying; home sellers care about selling and seedy real estate agents care about the commission.
It’s possible a home buyer doesn’t need a real estate buyer agent at all. The internet and platforms like Zillow have made all home listings public facing. A home buyer can search and find acceptable properties on their own, without a buyer agent. What a home buyer does need is a home lender and real estate attorney to review contracts and documents.
If you are buying a home this summer or fall and you elect to use a real estate buyer agent make sure you only pay a fixed or flat fee. Don’t give your hard earned money away to a cunning % commissioned real estate agent.
There is a compelling story evolving in real estate sales that meritoriously mirrors the recent proposed consumer protection efforts of the Consumer Financial Protection Bureau (CFPD).
In 2015, the advancement of technology and the influence of Zillow’s public facing listing platform has unlocked the control of the real estate agent and helped to devolve power to the consumer. Real estate sellers and buyers are frustrated that their consumer needs are not being addressed and the cost to transact real estate is too high. Many home sellers and buyers are challenging and questioning the traditional commission based sales model and asking WHY?
- REAL ESTATE AGENTS OPERATE in a VACUUM
The traditional commission based sales model is seeded in the Multiple Listing Service (MLS). The MLS is a restricted website for real estate brokers and agents only. It is also referred to as the broker’s network- an exclusive membership club for real estate agents to advertise and share commissions. Using the MLS, a commissioned listing agent will post a home for sale in hopes that a buyer agent will collaborate. Collaboration means posting and sharing a commission that is split between listing and buyer agent.
The listed commission determines how quickly a home will sell. The greater the commission the greater the chance a buyer agent will cooperate and show the home to their buyer. By design the home buyer has no knowledge of the commission offered to the buyer agent through the MLS. Both the home buyer and home seller are harmed by a lack of transparency and unethical real estate agents that conduct business purely in the vacuum of the MLS.
- REAL ESTATE AGENTS LACK TRANSPARENCY
The traditional commission based sales model is not structured to be transparent. Transparency is operating in such a way that it is easy for others to see what actions are performed. The home seller and buyer are the most important participants in a real estate transaction, but often times are not consulted until after the listing agent and buyer agent have forged a deal using MLS.
If you are a home seller be certain your listing agent employs a sales and marketing system that meets your approval and all your expectations are acknowledged.
If you are buying a home make sure your buyer agent (if you choose to use one) shows you every home listing, not just the listings that pays the most co-broke commission.
- REAL ESTATE AGENTS MAY VIOLATE the LAW & ETHICS
It’s truly amazing the number of buyer agents that ignorantly or knowingly violate (break) laws aimed at protecting the consumer by not showing a home buyer a home listing. The reluctance of a buyer agent not to show a home is generally because the MLS home listing does not offer adequate compensation to the buyer agent. Consequently, the buyer agent is steering home buyers away from properties for their own personal financial gain and putting their needs in advance of the buyer to whom they serve.
This type of deception by the buyer agent frustrates the reputation of all real estate professionals. It’s a sobering breach of the Realtor’s Code of Ethics, a serious violation of Mass General Law 93A (Regulation of Business Practices for Consumers Protection), and potentially an abuse of ANTITRUST regulations.
- REAL ESTATE AGENTS MLS is NOT CONSUMER FRIENDLY
In practice, a real estate commission/fee should echo free market considerations – consumers receiving the highest desired service at a competitive price. The reality is the MLS and the traditional commission based sales model fails the consumer and purely benefits the sales agent. Characteristically a real estate agent aggressively champions the traditional commission based sales model at the expense of the consumer by claiming:
“This is the rate every firm charges”
“I’d like to lower the commission, but no one else in the MLS will show your house unless the commission is X%”
“Before you decide to list with XYZ Realty you should know that because they are “discount” agents, members of the association won’t show their listings.”
The three above agent statements violate federal antitrust laws and state laws meant to protect the consumer. A free market is an economic system in which prices and wages are determined by unrestricted competition between businesses and consumers.
THE REAL ESTATE SOLUTION
- If you are selling a home only work with a full service, fixed fee real estate agent.
- If you are a buying a home use a fixed fee real estate agent and have a real estate attorney review all the documents/contracts.
Serendipitously the influence of Zillow may also help to reduce the transaction costs for both the home seller and buyer. Is paying a real estate commission really necessary? NO! But many real estate professionals feverishly protect the commission model suggesting it is in the only way to ensure sellers and buyers receive quality information and service. You can bet Zillow is delivering timely quality information and that there are real estate agents that deliver full service and do not charge a commission, but rather a fixed fee.
Zillow has cracked the dominance of real estate agents and brokers over the home buyer and seller. By devolving information and making home listing public facing Zillow has stripped real estate agents of a treasured commodity- the control of home listings. More importantly, Zillow does not operate like a Multiple Listing Service (MLS) – the real estate broker’s network. Zillow does not highlight the commission, also called the co/broke, a listing broker will pay a buyer agent. Often times a buyer agent using the MLS, will not show a home buyer a respected property if that listing does not offer a satisfactory commission to the buyer agent. Therefore the buyer agent under the MLS system is the gatekeeper of information. The buyer agent will serve his/her self-interest to make more money, rather than serving the needs of their client- the home buyer.
This point is confirmed by Inman News in a 2015 Special Report- “Why Real Estate Agents Don’t Compete on Commission Rates.” When asked what’s stopping the agent from charging a fixed fee or offering less in commission? The majority of respondents agreed that philosophically agents and brokers are opposed to commission discounts. Most noticeably because that means brokers/agents would make less money. More poignant is that agent and brokers said they fear if they represent a seller at a reduced commission, other brokers might not promote their listings to their buyers. This type of behavior is called steering and is in violation of laws that protect consumers and enforce competitive markets. A competitive real estate market based on reducing transaction costs is good for home sellers and buyers.
Fortuitously Zillow and the internet have leveled the playing field and empowered home seller and buyers. It is NOW up to home sellers and buyers to exercise this power and say, “NO to Paying a Real Estate Commissions”.
Save MONEY. Only list a home with a FIXED FEE Realtor.
Real estate statistics are interesting and make good conversation in the board room or at a cocktail party. For example, what are the most recent existing home sales activity in the northeast telling us? According to the National Association of Realtors existing homes sales through March, 2015 have increased 6.9% to an annual rate of of 620,000 units. Also, the median price of a home is now $240,500.
But don’t you really want to know what’s happening in your own backyard?
The below table shows you what is happening in Chelmsford, MA; Westford, MA; Concord, MA and Carlisle, MA. It’s data like this that analysts use to spin stories that we all read and talk about.
But more importantly what are your thoughts? What are these numbers saying to you.
If you are thinking of selling your home this Spring, NOW is the time to contact your local real estate broker. Be the first to market and capitalize on low inventory. If you want to put even more money in your pocket LIST your home with a FULL SERVICE, FIXED FEE real estate broker. Don’t needlessly give your hard earned home equity away.
How long will my home be on the market before a willing and able home buyer makes an offer?
According to the National Association of Realtors (NAR) a home in Massachusetts can expect to be on the market between 45-60 days.
But if you live in Middlesex County- in these selected communities- Chelmsford, Westford, Concord, Carlisle, Lowell, and Billerica, you can expect your home to be on the market 98.73 days according to the MLS.
The secret to selling a home fast and maximizing profit is outlined in the 4 P’s of Selling a Home.
If you want to put even more money in your pocket, use a full service real estate agent that breaks the commission mold and charges a FIXED FEE (no commission) and passes the savings to you.
This spring when you interview a prospective listing real estate agent make sure to ask, “how much will you charge me to sell my home?”
Don’t give your home equity away. Save 1,000’s of dollars and never compromise service.
Use a FIXED FEE, FULL SERVICE real estate agent.
This week I read an article about the struggling relationship between the National Automobile Dealers Association (NADA) and Tesla. In some ways this conflict parallels the most recent friction in Denver, Colorado between REcolorado (Multiple Listing Service) and Trelora, a Denver residential real estate sales company. Both Tesla and Trelora are trying to disrupt the existing sales model in their respected industry and challenge the status quo. In Trelora’s case, the company on their website highlighted REcolorado’s proprietary information and noted the tremendous cost savings achieved using Trelora’s flat fee model versus a commission sales model.
Since 1850 the real estate market in the United States has recognized only one model for the conveyance of residential real estate- the traditional broker commission sales model. The real estate broker has controlled the monumental scepter- the home listing- which chiefly empowers the real estate broker to decide when, how and who can sell or buy real estate. Some industry pundits have noted the internet and listing portals like Zillow Group- (Zillow and Trulia), and others are breaking the real estate broker’s stronghold over the consumer.
Really? Or is it just smoke and mirrors?
The reality is these sites make home listings available to the public, but still everything remains controlled by the commissioned real estate broker. In fact even Zillow bowed down to the commissioned real estate broker. What started as a consumer real estate disruption is proving to be a great disappointment. Recently Zillow shifted gears and their revenue model is now dependent upon the advertising of commissioned real estate agents/brokers that are called premier agents.
Obviously public facing real estate listing platforms underwritten by commissioned brokers are not what they appear to be- a (real) real estate disruption.
A (real) real estate disruption is a market model permeation in the form of increased COMPETITION. Competition that demands real estate brokers to reduce the cost to transact real estate e.g. commission or fee based, without sacrificing the quality or quantity of service delivered to the consumer. Real estate consumers do not want less service they want to pay less for the service. They want full service real estate brokers to compete on service delivery costs. Consumers want to put more money in their pocket and not in the pocket of the real estate broker.
COMPETITION is the (real) real estate market disruption and the traditional commissioned real estate broker can’t compete. Just ask REcolorado.
The polar difference between Trelora and REcolorado, the Denver area Multiple Listing Service, is unmistakable. Trelora is a consumer centric model and REcolorado is a broker centric model. Trelora serves the real estate seller and buyer and REcolorado serves the real estate broker. The discord is that Trelora and REcolorado fully serve different audiences but with a same end result- To Sell a Home. Nothing more, nothing less.
REcolorado is a broker network- an exclusive membership club for real estate brokers to advertise and share commissions and Trelora is a Denver area flat fee real estate broker. The issue is Trelora advertised on their website the MLS commission fees and the significant savings a seller and buyer will recognize using Trelora and not a commissioned broker. So what’s the big deal? Most every home seller and home buyer knows that when using a commissioned real estate broker they will pay the going market rate of 5% or 6% (commission), as their cost to transact real estate.
So was REcolorado and its member brokers justified in issuing a “cease and desist”?
The simple answer is “YES”.
According to REcolorado, Trelora is “ ………. breaking IDX rules that prohibit manipulating listing content in a way that “produces a deceptive or misleading result” and by making parts of the MLS database available to people who are “not authorized” to see it by MLS rules and regulations.”
There is no dispute that is exactly what Trelora did. Trelora is guilty of showboating their competitive market model advantage much to the embarrassment of REcolorado and its members. The big deal is that Trelora is also an active member of REcolorado.
So does that make Trelora a whistleblower or a market agitator?
This spring when you interview a prospective real estate broker, make sure to ask how much and how they charge to list and sell your home.
Don’t give your home equity away. Put more money in your pocket. Save 1000’s of dollars and never compromise service.
Use a FIXED FEE, FULL SERVICE real estate broker.
For now it seems REcolorado, the Denver area Multiple Listing Service (MLS), is either very persuasive with legal jargon or Trelora is satisfied with 48 hours of free marketing and exposure. The “cease and desist” order issued by REcolorado has forced the flat fee real estate broker, Trelora, to apparently succumb and abide by REcolorado’s demands.
No matter Trelora’s apparent hollow posturing continues the effort to frustrate the real estate broker commission model. Technology and the internet has devolved power to the real estate seller and buyer. It has unlocked the guarded “listing information” that real estate brokers, for the last 100 years, have treasured and aggressively protected.
The takeaway from reviewing the hundreds of comments from real estate sellers and buyers is that the real estate consumer recognizes the operational and market monopoly real estate brokers have reaped for so long.
Real estate sellers and buyers demand the following:
- REDUCED TRANSACTION COST without sacrificing quality and quantity of service
- COMPETITON based on “cost to sell”. Real estate brokers should advertise their service cost. Either fixed fee or a commission is okay, but paying a 5% or 6% commission will not be tolerated in a competitive market.
- To work with a LICENSED REAL ESTATE PROFESSIONAL.
Regardless if Trelora does nothing more to push reColorado, the real estate seller and buyer have taken notice and spoken. The real estate service market must be more COMPETITIVE.
Power to the Real Estate Consumer.