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
- Real Estate Broker · Raleigh, NC · Member since 2014 · 2k+ posts · 1k+ votes2yI can’t fully explain why they are so high, but I can tell you that while there are a ton of people with licenses, there are many of these who do little to no business selling homes. Either they got it to do a sale here and there part time, or they use it for their own investing purposes. So while those are the averages, of the ones that do it full time, the numbers are much higher.
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 agree that the profession is saturated, though. There is plenty of competition among agents, and I see a wide range of
commission structures to choose from. But more often than not, people choose the full service, hand holding for 5-6%. Probably because most people only transact homes once or twice a decade. A reduced rate would mean reduced service. That would lead to people who always go with the cheap getting the bare minimum home inspection, title work, etc. These are all bad ideas. The argument was that the buyer will pay their agent directly instead if the seller paying both. Trying to haggle the buyers agent down to less than 2.5% is ridiculous. By the time the agent is done working between showings, writing contracts, negotiations and inspections irs weeks of work. They ain't working for minimum wage and never will. You get what you pay for not sometimes but all the time. If you nickel and dime the agent what you really want is to be swindled somewhere in the transaction whether it be the inspection negotiations or title work being done wrong. There are plenty if things I see lately where I get poor service because done corporation has some free extra service with purchase of something but it would have been better if I just paid for the so called free thing and got what I actually wanted. That's where this is headed if you think the answer is let's undercut peoples pay more and more.
- 2yWale LawalBusiness MemberReal Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
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
NETWORTH BUILDERS5236 Reviews - Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes2y
The really simple answer to this question is this: the vast majority of Americans are too broke to pay attention, much less pay their own broker. If the seller wasn't covering the commission from both sides, there would essentially be no buyer's agents at all.
The buyer's agent is essentially getting a 50/50 split with the seller (actually each side's broker and then whatever the agent has with their agency but let's not get in the weeds here). They have more or less an equal interest in seeing that a transaction reaches a successful conclusion. Now let's say the buyer's agent has Buyer A at a 2% commission, and Buyer B at a 1.5% commission. Which buyer is S/he going to work harder for to see that a transaction closes successfully? Does the agent care as much about Buyer B losing their earnest money as Buyer A? Conversely, if a seller's agent has Seller A at 3% and Seller B at 2%, which house are they most likely to return phone calls on? ETC.
People like to think there's some great collusion here at work, but in short order with or without a fixed commission system percentages are going to be right back where they are now because that is the point of equilibrium the market has reached where agents are willing to work. By making the commission system a free-for-all, what will happen is that lots of people are going to be out on a wire unless they're willing to pay substantially more commission for services - there will be a whole lot less realtors, good ones will command higher commissions, and cheap bastards - both sellers and buyers - will get their comeuppance in the form of lost sales, screwed up paperwork, undisclosed defects, etc.
From a free market point of view disrupting the commission system will make things work exactly as they should - good agents will command even more money and everyone else will be shook out of the system. But from a consumer protection standpoint, it will train wreck a system that overall does a pretty good job of protecting buyers and sellers without a whole lot of government intervention and oversight. People who can't, or won't, afford to pay up for excellent representation will be gambling with the biggest purchase they are likely to ever make in their lifetime. Right now, the system tends to create an environment where even lousy agents generally can't screw things up. As far as US commissions compared to other nations (which ones?), most of those nations have much heavier governmental intervention in the real estate market, more onerous regulations and bureaucrats who (ostensibly) prevent problems on either side of the equation. You pay less commission to the agent but more money to the government.
The people who predict this will bring down housing prices and commissions are delusional. You might get lower average commissions, but you will find that the fastest selling and closing properties will probably be paying higher overall commissions.
Skyline Properties - Member since 2019 · 7k+ posts · 4k+ 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?
This is same question why in US we have culture of tipping when other country do not , also why in Us there are just so many added layer fee for attorney , legal and sort of.
To be quick , higher commission in US happened because American way of doing business is not efficient, there are layers for law, legal and attorney fee. Higher commission is just artificially crafted for that purpose.
- 2yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
It is an interesting question, but I know the money the realtors get, doesn't all go to them. Aside from paying taxes, there are a lot of people behind the scenes that we rarely see.
I find it a more interesting question as to why it is a % commission instead of a flat rate? Same with PM. It takes just as much to sell a $100K home as a $500K home, so why does one give the realtor more money than the other.
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes2y
It is high because of the free market. Why are car prices so high? Why are soda prices so low? Why are rent prices so high? The free and efficient market finds the price that the consumers are willing to bare.
Only one thing in the last 50 years has affected the commission rates; The available supply of labor. When licensee rates go up, average commissions go down. When licensee counts go down, average commission rates go up. It os a simple supply and demand of available labor.
The ironic thing about all the lawsuits....its going to drive licensee counts down, which will put upward pressure on costs. So a lawsuit attempting to bring down costs will in the end do the opposite and drive up costs.
District Invest Group545 Reviews - Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Theresa Harris:
It is an interesting question, but I know the money the realtors get, doesn't all go to them. Aside from paying taxes, there are a lot of people behind the scenes that we rarely see.
I find it a more interesting question as to why it is a % commission instead of a flat rate? Same with PM. It takes just as much to sell a $100K home as a $500K home, so why does one give the realtor more money than the other.
Flat rate is available too in many market …..
currently there are few SFR fund that is liquidating their asset by using cheap 1% broker. A lot of agents spend a lot of their free time helping out people looking, but never acting. They don't charge for that phone call, email, MLS search, etc., that the provide. That price is reflected by the one's that will actually do something
If this rule creates an issue on the buyer's side agent, it's just going to drive up the prices of a quality buyside agent.
- 2yWale LawalBusiness MemberReal Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
Quote from @JD Martin:
The really simple answer to this question is this: the vast majority of Americans are too broke to pay attention, much less pay their own broker. If the seller wasn't covering the commission from both sides, there would essentially be no buyer's agents at all.
The buyer's agent is essentially getting a 50/50 split with the seller (actually each side's broker and then whatever the agent has with their agency but let's not get in the weeds here). They have more or less an equal interest in seeing that a transaction reaches a successful conclusion. Now let's say the buyer's agent has Buyer A at a 2% commission, and Buyer B at a 1.5% commission. Which buyer is S/he going to work harder for to see that a transaction closes successfully? Does the agent care as much about Buyer B losing their earnest money as Buyer A? Conversely, if a seller's agent has Seller A at 3% and Seller B at 2%, which house are they most likely to return phone calls on? ETC.
People like to think there's some great collusion here at work, but in short order with or without a fixed commission system percentages are going to be right back where they are now because that is the point of equilibrium the market has reached where agents are willing to work. By making the commission system a free-for-all, what will happen is that lots of people are going to be out on a wire unless they're willing to pay substantially more commission for services - there will be a whole lot less realtors, good ones will command higher commissions, and cheap bastards - both sellers and buyers - will get their comeuppance in the form of lost sales, screwed up paperwork, undisclosed defects, etc.
From a free market point of view disrupting the commission system will make things work exactly as they should - good agents will command even more money and everyone else will be shook out of the system. But from a consumer protection standpoint, it will train wreck a system that overall does a pretty good job of protecting buyers and sellers without a whole lot of government intervention and oversight. People who can't, or won't, afford to pay up for excellent representation will be gambling with the biggest purchase they are likely to ever make in their lifetime. Right now, the system tends to create an environment where even lousy agents generally can't screw things up. As far as US commissions compared to other nations (which ones?), most of those nations have much heavier governmental intervention in the real estate market, more onerous regulations and bureaucrats who (ostensibly) prevent problems on either side of the equation. You pay less commission to the agent but more money to the government.
The people who predict this will bring down housing prices and commissions are delusional. You might get lower average commissions, but you will find that the fastest selling and closing properties will probably be paying higher overall commissions.
Very well put together from the Legend himself.
NETWORTH BUILDERS5236 Reviews - Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
@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.......
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @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.
That is issue with current realtor business structure James. But that can be modified in the future. So what you are tellin me is basically the way the brokerage industry running the business is "heavy".
Why not every agent has their own brokerage ? I know the licensing is different but still a broker with 2-3 agent could make way more than large agent that share commision split. I knew few flat-list broker that only 3 agents and charging 9k flat only to sell. Yes their service sucks but it's available in the market too LOL
We also have something like Redfin where they receive income more from salary.And we have not talk about REX where it has totally different model too.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @V.G Jason:
A lot of agents spend a lot of their free time helping out people looking, but never acting. They don't charge for that phone call, email, MLS search, etc., that the provide. That price is reflected by the one's that will actually do something
If this rule creates an issue on the buyer's side agent, it's just going to drive up the prices of a quality buyside agent.
I will add some Real World example to this.
I am, right now, re-tooling to meet this expected future.
For my team we are flipping things to following more of the attorney format. That means yes, "pay-for-play". Buyer's will have a choice of a 0-comission package, that will have a required up-front retainer, a commencement fee, transaction fee, per showing fee, per comp/BPO fee, and a hourly advisor fee billed per 15min increment's.
And I HATE this even though every expectation is it will make the team way MORE $. Why do i HATE it, because notice what it does NOT have? Passion. Hussle. Where is the incentive for the agent to bust-azz to make things happen? It's all just facilitating, processing.
On %, agent's are pressed, HARD, to make things happen. They gotta dig, get creative, fight. When they do that client's WIN.
And on Listing/Seller side we are creating an optional package that's exactly the same, 0 commission but guess what, it comes with an upfront price tag and fee's galore. And again, I can't figure out how to incentivize my agent's to dig and fight the way they do now when it's the same fee reguardless. Yes, i can "crack the whip" and I will but I am a realist and I know it's gonna be herding cat's and they only do so much to meet demand of moment.
I closed a sold listing last Friday 85K OVER what sellers were hoping and expecting. All agent fee's for both sides were a fraction of the ADDITIONAL amount we got was. Part, yes, I am a sick twisted addict to this sport called Real Estate BUT also we had all the incentives for it via % based fee for service. And here is the cold-hard-truth, the buyers agent wasn't hoping to get her client to pay more, she just got beat by us! Plain and simple, we were better negotiators then that buyers agent.
This whole BS of buyers agent's COMPLETELY misses that 1 key point, buyers agent's are not exact match "gun slingers" to the listing agent's sometimes. And vice-versa.
Taking this industry to a prevalent fee model, man, it's GREATLY going to reduce service delivered. Just wait, soon there will be fee's to "register" on websites to search MLS.
The more barriers to participate means a BIGGER disparity gap, more remaining in poverty, harder to elevate out, less 1st time home buyers, less buyers. It's bad for EVERYONE. Only 1 win's, the a-hole lawyers searching for there next sucker to sue. That's it, only the lawyers win. The people loose, yet again. Because there being too dumb to see the big picture, and OBVIOUS big picture.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Carlos Ptriawan:
Quote from @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.
That is issue with current realtor business structure James. But that can be modified in the future. So what you are tellin me is basically the way the brokerage industry running the business is "heavy".
Why not every agent has their own brokerage ? I know the licensing is different but still a broker with 2-3 agent could make way more than large agent that share commision split. I knew few flat-list broker that only 3 agents and charging 9k flat only to sell. Yes their service sucks but it's available in the market too LOL
We also have something like Redfin where they receive income more from salary.And we have not talk about REX where it has totally different model too.
To frame this for everyones understanding I am NOT just some run of the mill agent. I run a top national ranked team. Have been in top 2% of agent's nationally as ranked by production AND client satisfaction (that 2nd is VERY important to me) AND I have ran a brokerage before as managing broker and director.
Here is the thing Carlos, it's VERY expensive to run a brokerage. It's for this fact that so many join and work under a Brokerage Brand. Because than that Brokerage brand can spread those cost's out over the big pool thus mitigating those cost's down.
On average any Brokerage requires no less than 8 different tech systems, and no less than 4 vendor services to facilitate those. This is BARE BONES to properly operate.
For example, you can't just use an ordinary e-mail. You can but your an idiot for doing it and putting client's at HUGE risk. We deal in serious financial transactions and transmittal of sensative financial information. So, one NEEDS to have a secured server service. I currently operate with such via a microsoft service. Active monitoring, various security protocols in place, active IT staffing etc..
Next we have document archiving, again has to be secured. Document signing, again secured. Than a transaction management system to connect the various persons from various locations, again secured. Than website to drive lead's, and it's constantly updating and that means people to update (marketing) and persons to manage tech side. Than we have accounting, do you know I spend more on accounting per month than most people spend per year? Because I run a business and Uncle Sam is up my tail-pipe with a microscpe BUT also because the state and commerce dept/ require great records to assure our client's are being fairly treated and legally served. Next we have continuing Ed and licensure. Insurance for the business and licensure. Than the auto expenses to get to and from places, signage for locations. Than we have the marketing blitz per listing.
Carlos, this is all off top of the head. The cost's are GREAT. The regulations are significant. We have federal regulations, State regulations, and than various regulations in every county and city that is pertinent. One has to KNOW exactly what pertains and what does not. Than you need attorneys on retainer to review contract's and doc's annually for any updates, and for any specific situations.
Oh, and ya wanna do PM too, lol, well were just getting started then, now we are 7X'ing all the expenses.
Being a Real Estate Broker/Brokerage is EXPENSIVE. Think, I have FULL WEIGHT of liability on my shoulders for ANYTHING my agent's do. I am the Sheriff. The State is the Executioner, it's my job to make sure nothing ever has to go to the Executioner, because head's will roll.
Just the various marketing actions alone, your head would spin at the expense. Talking with a friend at a "boutique Brokerage" they were burning though $34k per month on JUST marketing spend. And they are a small single location handful of people Boutique Brokerage. Add on operational, yeah, it's crazy expensive, and so there fee's for service, the % split was HIGH.
There is a reason why flat-fee brokerages go under at a rate OVER 90%. Look it up, there constantly opening, and closing. And giving way sub-par service.
The big tach firm's are working on models of other monetization, that's there way forward, how to capture the data and monetize it differently to create relief on reliance of sole monetization from the agent model. Even then, there not doing too well.
eXp thus far is the leader in sorting the most efficient manner of doing it all, at lowest cost. And guess what, it's the agent model. It's very close to what other agent models are and it's for simple fact there is no ready way to make big cut's to those fundamental expenses without suffering major risk or loss of service.
Sure, forget client data security, use a gmail. Your doing a disservice to your client's risking there data. 1 breach, your done.
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @James Hamling:
Quote from @Carlos Ptriawan:
eXp thus far is the leader in sorting the most efficient manner of doing it all, at lowest cost. And guess what, it's the agent model. It's very close to what other agent models are and it's for simple fact there is no ready way to make big cut's to those fundamental expenses without suffering major risk or loss of service.
Sure, forget client data security, use a gmail. Your doing a disservice to your client's risking there data. 1 breach, your done.
so realtor biggest cost is "tech cost" , quite similar to "medical sector". Tech cost is actually creating more expensive economy rather than lowering the cost of transaction which end up punishing customer.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Carlos Ptriawan:
Quote from @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.
That is issue with current realtor business structure James. But that can be modified in the future. So what you are tellin me is basically the way the brokerage industry running the business is "heavy".
Why not every agent has their own brokerage ? I know the licensing is different but still a broker with 2-3 agent could make way more than large agent that share commision split. I knew few flat-list broker that only 3 agents and charging 9k flat only to sell. Yes their service sucks but it's available in the market too LOL
We also have something like Redfin where they receive income more from salary.And we have not talk about REX where it has totally different model too.
To the point; in my opinion I think the eXp model will be "THE" prevailing model going forward but not sure it will be eXp themselves. They blazed the path but it's got a lot of unnecessary "fluff". Hard to explain but many will know what I mean by this.
It's a mix where it's big tech empowering localized small business/people. That I love, because as you know I love Love LOVE small business. So maybe I have some bias here clouding my judgement also.
Local small biz problem is eating the full "meal" of expenses. We are in a Tech world, getting extremely complicated now and more so by the hour with ai taking center stage.
So small biz is f'd without access to these complicated, expensive tool's. But connect small biz, in a pooled resource access manner, spreading out cost's, now that's a winning combination. But it requires a "Sam Walton" at head of that organization. Someone who care's about what there doing and not just chasing the $'s. With passion for the people, the mission, guided by principle and not profit alone.
I miss Sam. He was amazing beyond any comparison. America need's another Sam Walton now more than ever.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
Quote from @Carlos Ptriawan:
Quote from @James Hamling:
Quote from @Carlos Ptriawan:
eXp thus far is the leader in sorting the most efficient manner of doing it all, at lowest cost. And guess what, it's the agent model. It's very close to what other agent models are and it's for simple fact there is no ready way to make big cut's to those fundamental expenses without suffering major risk or loss of service.
Sure, forget client data security, use a gmail. Your doing a disservice to your client's risking there data. 1 breach, your done.
so realtor biggest cost is "tech cost" , quite similar to "medical sector". Tech cost is actually creating more expensive economy rather than lowering the cost of transaction which end up punishing customer.
Exactly, 100%.
I hadn't thought of it that way but yes, your spot on. It really is increasing cost's and complexity not diminishing them.
And it's not just the direct tech cost itself, it's also cost's to manage and maintain them, than to defend because as tech increases capability it does same for nefarious element (ie hackers). And keeps driving marketing cost's up.
Take Google alone for advertising. It's common now that a cost-per-click is over $20 for a real estate keyword! That's per CLICK not client. I remember when it was a few cent's. It's way bonkers now.
If someone killed the internet tomorrow, and all brokerages had to go back to the Yellow Pages and mailers, I bet the industry cost would go down MINIMUM 30% just from that 1 action. Tech marketing is gobbling up so much of Americas $, I don't think most have a clue.
They cost what the market will bear.
That's how we do it here in the USA.
This is not a command and control economy, we are a free market.
That is one of the reasons so many people [try to ] flock here and invest here.
And most real estate agents do not earn very much money every year, although a handful earn a large amount.
In our game here in America if you want to play you have to pay- whatever the markup will bear.
Good Luck!
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes2y
Quote from @Yongming Huang:
Others are giving some decent answers, but I really think it's because our market is saturated with amateurs and part-timers.
Let's say there are 1.5 million agents. About 300,000 of them are top producers responsible for 80% of the real estate sales. These are the agents that are worth every penny. The other 80% of agents are part-timers or inexperienced, and they should come at a discount.
Unfortunately, the part-timers and inexperienced agents charge the same as the most experienced agents even though they bring far less to the table. It's odd to me. You can pay $100 an hour for a run-of-the-mill, greaseball attorney to help you write a legal document or plea down a DUI. You would happily pay $1,000 an hour for a top attorney to keep you out of prison.
I would love to see real estate agents charging based on their experience and the difficulty of the transaction.
The DIY Landlord Book4.7247 Reviews - Rental Property Investor · Member since 2020 · 1k+ posts · 1k+ votes2y
Keep in mind I'm not a realtor or broker so I'm coming into this on the other side of the lens than many posters who have posted. I would say the biggest reason we have the current system is most real estate agents are Realtors. The purpose of that organization is to keep realtors profitable and the current system does just that. I have always questioned the 6% split both ways as I don't see someone selling a 1M house having to work significantly harder with increased expense as a 100k house. In fact I'd bet the opposite is true as the cheaper houses will have more issues come up in inspection and attract a class of buyer who is more likely to have issues come up with the mortgage. I could be wrong and am open to being corrected.
While I don't think the current system is perfect I don't have a better idea. It is necessary though because like many businesses the majority of your money comes from the minority of your clients. You have tons of people wasting your time that never close so those that do need to cover for that time. My fear is exactly as @James Hamling stated that this will move more into a fee structure up front for buyers especially. The issue I see with this is that buyers are already strapped for cash enough and it is hard for many to come up with a down payment so many won't be able to afford to come up with these fees and still have money left over. You all still have a business to run though so you have to come up with your money somewhere. My hope would be that we can somehow get your fees into the closing costs or wrapped into the loan so that lower income buyers can still afford good representation. I also think that more buyers will just go straight to the listing agent hoping to get a discount rather than crating a relationship with their buyers agent who can guide them through the process. I'm not a fan of double closing especially for the unexperienced because the sellers realtor's primary alliance is with the seller not buyer and it is impossible that you are both getting equal treatment. As in a lot of government interference with free enterprise while they have good intentions I think the results will be the opposite that they were hoping for.
- 2yHenry ClarkPro MemberDeveloper · Member since 2020 · 4k+ posts · 4k+ votes
Just as one datapoint.
My neighbor owns the local Real Estate office. They have 90% of all the listings. Community of 10,000 in our town. 15,000 total in the county.
He spends $30,000 per month on advertising, listings, etc.They charge 7% commission. The breakdown is 4% to the selling agent and 3% to the buyer agent.
They do a 60/40 split with their agent. The office gets 60% of the 4% or 7%. Since they pay for the advertising and have the office.The agent usually does not do both the buy and sale. So they would get 40% of the 4% or 1.6%. Just round math use $200,000. They would get $3,200 on that sale. Then pay taxes.
There are around 15 agents. As mentioned above only 4 of the 15 really do sales.
My agent is one of the top agents. He might sale 20 at best every year. At $3,200 that is about $65,000. He has 3 kids in college and a stay at home wife. Plus he needs to look good and keep up appearances. Luckily he learned early and has rental units. He started at 25 and is around 50 now.
We have used 3 realtors for different reasons in different markets. They have helped us make about $2mm on the deals they have brought to us. Glad to pay their commissions.
You need to decide if you are in the REI business or just doing a few deals. If you're in the REI business these agents are part of your team. You want them to be financially successful.
If you’re doing a one off deal OOS then you might want a cheap agent. But they will also treat you cheap since they will only see you once and you’re a bad customer because you want the moon and don’t know the market.
We will make $1mm off this 75acre country subdivision. We were out of the country and our realtor took care of us bidding at auction and buying this property. He was not paid. He is part of our team. This will be his listing. Same as our last subdivision. Don’t mind paying his commissions.
- There are 2 sides to most of those 5-6M transactions (buy side and sell side), so the number is more like 8-10 transactions per year per agent. The average for active full time agents is higher because many licensees only do an occasional deal (part time agents, partially retired agents, property managers who hold their license just to manage, investors who use their license just for their own deals, etc.). I agree with your underlying point that it’s an over-saturated field however.
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?
- Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 738 votes2y
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!!!
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes2y
@Adam Martin As a property price goes up, commissions % goes down. Although to answer your question higher $ transactions DO cost a LOT more to manage.
First, it's a a ever smaller seller/buyer pool, meaning more expense in marketing to target and connect with that person. Next we have higher requirement's so now comes in things like stagging which bigger and nicer cost's more. The marketing elevates and so does expense with it.
On buy side, buyers are far more demanding and with it much more time spent and input's done with a much slower volume and slower pace to closed deals.
What you put out of a way for parties to transaction to wrap transaction cost's into financing, is EXACTLY how we got to today's system. This system, today, was evolved over a great many decades to arrive at all these refinement's for buyers and sellers alike. But now, with all dialed in, we have arrogant ignorance saying "well, if I had that sale with NO agent cost's, i would have had more $" yeah, AND NO SALE, so 0 MONEY!
It's the exact same argument as a person 1yr out of surgery saying "jeeze, look at this surgeon bill, if I wouldn't have had to pay a surgeon for my surgery I'd have saved a ton of $", than how'd you had the surgery done dummy! What, the surgery-ferry will just do it?
Just like how that dummy "can" go to S.America, find some back-street person to do the surgery for a "low fee" and get it done, for a lot less, but ya know know a weird gimpy limp and scars like Frankenstein, soo too can people use Discount Brokerages who do this exact service for real estate transactions. Been around for decades.
But here is the nutso part of it, people are saying no, they don't want that service, they want the full service at the next to free price. Well, I want a new Tesla for the price of a '78' Pinto too. The sickness is our INSANE society today who has ENTITLEMENT-CANCER and think's they can just say thing's into existence removed of all sense, common or obvious.
It cost's a LOT of $ to run a real estate brokerage, that is why the cost's are what they are. Real Estate agent's, as a whole, are GROSSLY UNDERPAID. The miniscule few of us who make baggable incomes, get that because we have built Business's that are wildly efficient, serve at volume, with exceptional high level of service. If we didn't have the service we wouldn't have the volume. We have scores of persons working behind the scenes. I wish I got to keep what I "make" lol, my gross income is NOT my net income, I have half a dozen people behind the scenes on any 1 transaction.
If a Taco Truck does good, and a person has 6 of them, why is it nobody freaks out saying that Taco Truck owner "makes too much" and sue's that price of Taco's must get lowered?
If you don't like the R.E. Broker/Agent price, DONT USE THEM. It's not complicated.
But here we are and the action is to sue the business's people want to use, into charging what people want to pay, which in real estate seems to be ZERO..... Yeah, a person who carries food is worth at least a couple hundred per hour but the person navigating and running your multi hundreds of thousands of dollars if not millions of dollars transaction, why can't they do it for $17.50hr...... yup, makes perfect sense right.......
- Specialist · San Clemente, CA · Member since 2014 · 50 posts · 75 votes2y
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.
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