As far as "any agent willing to work for an hourly rate is inexperienced or unsuccessful." Very true...But success is measured in different ways..I may be new, broke, and what some people consider unsuccessful "got my license in March" but my first investor I found a few weeks ago is going to make $10,000 in less than 40 days from my first deal ever....even Warren Buffet had to start at the bottom.
@Matthew Olszak I completely understand the contracts. What I am talking about are the economics. The commission is normally paid via a pass-through payment by the buyer.
I hate to point myself out as old but I think I had stopped dealing in residential properties and focused on industrial before you became an agent. I might have even gone to work for a REIT.
Please google "pass-through". Then read the research done on behalf of the National Association of Realtors. It will explain the prices are raised to cover the cost of the commission. If that was not the case then the increase of sales prices because of hiring an agent would not be near as high as Realtors say.
If a seller as part of the listing process asks "where is that money going to come from" what do you say? Most agents will say at that point it comes from the buyer. What is the buyer getting in return? The buyer is getting the property. That means it is a pass-through payment.
To further support @Matthew Olszak 's point:
1) Some academics just did the first legit study on FSBO sales that I've ever seen (unfortunately, BP won't let me link to my blog post on it) and it shows that FSBOs get about 5 - 6% less for their properties than when sold by agents. Hmmm.
2) Even if you don't believe commissions affect the price, the fact of the matter is that if the buyer doesn't have an agent there is one less person involved in the transaction asking to get paid. Sure the listing agent could insist on pocketing that but they don't always choose to do that and the sellers often won't let them (depends on how the listing agreement is written). So the buyer and the seller could split those savings however they want.
3) This is exactly why we started the hourly model because there really is no need for an agent to get paid for work they didn't do and the fact that an agent makes a lot less on other deals doesn't mean that a seller should subsidize those other deals. All we should really be arguing about here is how much per hour an agent is worth. How they realize that hourly rate is not worth debating.
"All we should really be arguing about here is how much per hour an agent is worth. How they realize that hourly rate is not worth debating."
That statement is exactly like saying "All we should be arguing is how much a waitress/waiter is worth per hour, how they realize that hourly rate is not worth debating"
How much should waitstaff make at the local family diner? How much should they make at a $400 a plate restaurant? Do you expect different service levels from either? Because you are at a $400 a plate restaurant why should you have to tip on top of that, the restaurant already made $1600 off your group of 4 they should cover a wage to the waiter right? Or should they only be charging you $320 so you can still tip? Where the money comes from does make a difference.
Just my 2 cents
@Mike Cumbie Actually I think tipping is a bad concept and would prefer that everything be baked into the menu prices. Some restaurants are eliminating it and it's a uniquely American concept. And I do think about what the wait staff makes per hour and I do think that different types of restaurants with different service expectations should result in different hourly earnings for the wait staff. But at the end of the day all I really care about is how much the meal costs me and how the wait staff is paid doesn't really matter.
I also think that a realtor working on a $2 MM deal should be able to earn more per hour than a realtor working on a $200K deal.
Nothing is sacred in this world - especially not the commission structure of real estate agents. All you have to do is look at the market for evidence of what makes sense and what doesn't. The medallions system for Taxis was utterly stupid and overnight Uber killed it. Stockbrokers used to make $600 on a trade and they convinced people for decades that they were worth it but today I do that same trade for $4.95 and I get better service than I used to get from that stockbroker. Similarly, new real estate brokerage models are popping up all over the place to wipe out the excess profits in the real estate industry.
All I can think about at this point is that there are millions of people in this country right now that are working hard, stressful sucky jobs making less than $20 an hour and are glad to have them because they have bills to pay. On the other hand we have people that are too proud and feel offended to take a job making $200 an hour. Strange world we live
Well noone has ever walked up and offered me $200 an hour to even have that conversation. There have been a lot of "Hypothetically speaking" type questions over the years, but noone with contract in hand. I do suspect that the person with that contract would have a completly different idea of what "Answering an email" means than I do though. I'm not too proud to clean bathrooms, Clean dog messes out of back yards, scrape and paint windowsills, take the dog for a walk so an inspector can get in or any of the other things that "pop up" (All of which I have done for my principal in an emergency).
People want the agent to be paid when the transaction happens. If you are doing hourly you are on the hook regardless of the outcome. So if I had 8 hours into a transaction you were the seller and the buyer walked away you still owe me $1600. While you may get some investors to say "Ah well, here you go", good luck with an average seller/buyer. Offer "Pay by the hour listings/offers" vs "only pay if it sells" listings/offers then do a survey 3 months later from both groups. How many people that paid a couple grand out and are still not in/sold their house do you think would go that route again?
@Mike Cumbie it is working for us and many of our clients today. It's not for all clients though.