If you’ve followed the real estate industry for any amount of time, you’ve probably been involved in the perennial debate about the high agent commissions/professional fees in the U.S.
A common argument for lowering commissions claims U.S. commissions are among the highest in the world, but technology means agents don’t find homes for buyers anymore. They just unlock the door and fill out paperwork, and lots of agents don’t even do this full-time.
The common denominator in this debate is always the agent. Critics say they earn too much and do too little. But rarely is the brokerage relationship addressed. Commission splits to the brokerage can often be as high as 40%. You have to factor in this expense when looking at ways to reduce commissions.
Some brokerages have pursued different business models to try to bring down commissions. One for example employs agents as full-time employees instead of commissioned salespeople — while setting a standard for what a consumer thinks agents deserve. However, this model is an anomaly. They have taken on the high expense of using full-time employees as agents — an unsustainable model for most brokerages.
Great agents work incredibly hard. They build their brands, market themselves and hire assistants and build teams. They are business people dedicated to their client’s success while being master negotiators and knowledgeable advisors. Making their jobs even more challenging is the fluctuations of the business that requires amortizing their commissions, and spreading them out over slowdowns and low seasons.
Many real estate practices clung to by brokerages were antiquated even before Coronavirus. Large office space is totally unnecessary in most markets where the internet is strong enough for digital transactions. Social media, podcasts, webinars and online platforms have made traditional brokerage marketing attempts to drive their own brand through print ads, billboards and bus stops of limited value.
While Americans shouldn’t pay the highest commissions in the world, the hard work of real estate agents shouldn’t be devalued to solve this.
Some say the answer lies in brokerages evolving and making their own businesses more efficient in order to charge better splits, or better yet a flat fee per transaction, thus allowing agents to bring these savings back to consumers. The support provided by the brokerage for a $1 million listing versus a $400,000 one is likely similar, yet the commission splits model ensures the brokerage pockets substantially more for an expensive listing. But this model already exists making this short-sighted as the only answer. The agent doesn't save enough on the brokerage level to pass substantial savings to the average consumer (this is different in luxury). And the brokers won't stay in business if their isn't profit in it for them too.
Eliminating the third party companies that have their hand in the pocket of the agent would probably save agents more.
Simply ask successful agent how much they spend on marketing both themselves and the properties. They may not buy billboards and newspaper ads like they used to but social media ads can be just as expensive! Have you hired a professional photographer/videographer lately? And all listings require full professional measurements now so that is the agent's time or money too...
How much are they paying staff/assistants? As the stacks of paperwork grow and more people get involved in each transaction, extra hands are required to juggle the details.
How much does it cost to buy "leads" in hope to save prospecting time for face time with their customer? Those big public listing portals were developed to monetize the consumer - just like any other free web service. (Hello - just watch The Social Dilemma!)
What's the cost to own that super computer or smartphone with the best photo/video imagery for doing live tours with clients?
And an agent leading the team that covers these expenses for their agents will need to take large commission splits from their agents for all these expenses.
On that note, what would you expect to be paid if your boss expected you to basically be on call 24/7 without any vacation time, expense reimbursement or benefits like healthcare or 401k? This is the life of a solo agent in a hot market.
Careful where you cut. The best agents are going to stay if they can get a job that pays better with less stress.
This article was provided by Sarah Marrinan. Find more great info on Sarah’s website at www.CallSarahFirst.com/about.
As a Certified Residential Specialist with multiple additional real estate designation, certifications, awards and experience, if you’re thinking of selling or buying, Sarah Marrinan would love to share her knowledge and expertise. Proudly servicing the Twin Cities, MN with extra focus in these areas: White Bear Lake, Hugo, Lino Lakes, Centerville, Vadnais Heights, Shoreview, Mounds View, Circle Pines, Mounds View, Mahtomedi, Forest Lake, Columbus, Wyoming, Saint Paul, Minneapolis, Roseville, Lake Elmo, Stillwater and Oakdale, MN.
Contact Sarah on this website at www.CallSarahFirst.com/contact
