6% Real Estate Commissions a Thing of the Past?

15 Replies

I'm not worried. Just like looking up when something hurts on webmd, I can probably figure out what's wrong with me, but I am still going to seek out a medically trained and licensed professional to see me through the ordeal. 

the 6% cartel is long overdue for technological upheaval.

its' like car dealers, an outdated system that everyone hates that will soon be replaced by technology but the timeline has dragged on because the industry is so fragmented (and archaic dealer franchise laws).

Zillow does 99% of the work for real estate agents now and yet commission haven't come down to adjust. It's blatantly obvious that the market prices are not changing to reflect the difference in service that realtors provide. 

My guess is that the realtor community will continue to grasp at this old format for as long as they can, but ultimately the high costs will only further incentive the market to do away with them. It's happening now, albeit slowly. Like many dying industries, they refuse to adapt and will only stronghold their position into inevitable obsolescence. 

@Alexander Felice probably not. Technology hasnt disrupted the industry and likely wont because the actual reason agents exist is to provide liquidity to the market. Why do 90% of FSBO attempts end up listing with an agent eventually....because the transaction falls apart. Getting buyers across the finish line, keeping things moving forward, being the voice of reason when someone is freaking out of a nothing issue in a home inspection is the only reason the industry exists. There would need to be a major cultural shift by the general public for change to occur in the industry.

Zillow.....how do you think they actually make money? Selling leads to agents. They have no desire to disrupt the industry, because if they did they would be out of business.

There is exactly 1 factor that affects commission rates....the number of licensees in the market.  When the number of licensees goes up, average commissions go down, and when the number of licensees drops, average commissions go up.  

Here on the site we get a distorted view because the site is inherently filled with people who have bought and sold dozens and hundreds of homes....but that isnt the general public.  Those of us who deal with the general public on a daily basis (and I work primarily with investors!) can easily tell you 90% of buyers would never to make it to closing without all the hand holding, and calming of fears, and all the stuff that technology cant do.

@Alexander Felice - not only is @Russell Brazil correct, I find that my workload has increased because of Zillow. How's that? Because I keep having to explain to clients every time Zillow provides incorrect information. Btw, getting stuck on 6% is nonsensical. There are deals that deserve (and do get) considerably more commission; and there are deals that could work with a little less. You believing Zillow does 99% of the work for real estate agents means that either you've encountered really bad agents or you're not clued into what agents do.

Originally posted by @Russell Brazil :

@Alexander Felice probably not. Technology hasnt disrupted the industry and likely wont because the actual reason agents exist is to provide liquidity to the market. Why do 90% of FSBO attempts end up listing with an agent eventually....because the transaction falls apart. Getting buyers across the finish line, keeping things moving forward, being the voice of reason when someone is freaking out of a nothing issue in a home inspection is the only reason the industry exists. There would need to be a major cultural shift by the general public for change to occur in the industry.

Zillow.....how do you think they actually make money? Selling leads to agents. They have no desire to disrupt the industry, because if they did they would be out of business.

There is exactly 1 factor that affects commission rates....the number of licensees in the market.  When the number of licensees goes up, average commissions go down, and when the number of licensees drops, average commissions go up.  

Here on the site we get a distorted view because the site is inherently filled with people who have bought and sold dozens and hundreds of homes....but that isnt the general public.  Those of us who deal with the general public on a daily basis (and I work primarily with investors!) can easily tell you 90% of buyers would never to make it to closing without all the hand holding, and calming of fears, and all the stuff that technology cant do.

you're saying I'm bias because I hang out on this site and know real estate transactions.

I think you're bias because you hang out with only people who don't 

either way, my point is not that realtors will go away, simply that the 6% commission will. 

transactional cost and complexity is a barrier, but for the same reason: technology. 

my opinion is that once title policies go digital everything will change. Underwriting for single family homes with good credit can already be automated, legal is what holds it up.  

I'll gladly pay a realtor $500 to let me in a house and be a voice of reason, maybe even $1000! 

but

the days of a pair of realtors earning $15,000 on a $250,000 house are numbered. 

Yawn, Ive been reading that on this site for 10 years, reading it in the news for 15 years since zillow came around, for 25 years since the mls went online.....yet it still has yet to materialize. Technology has just helped the top 1% of agents gain more market share since we can be more productive. 

Originally posted by @Alexander Felice :
Originally posted by @Russell Brazil:

@Alexander Felice probably not. Technology hasnt disrupted the industry and likely wont because the actual reason agents exist is to provide liquidity to the market. Why do 90% of FSBO attempts end up listing with an agent eventually....because the transaction falls apart. Getting buyers across the finish line, keeping things moving forward, being the voice of reason when someone is freaking out of a nothing issue in a home inspection is the only reason the industry exists. There would need to be a major cultural shift by the general public for change to occur in the industry.

Zillow.....how do you think they actually make money? Selling leads to agents. They have no desire to disrupt the industry, because if they did they would be out of business.

There is exactly 1 factor that affects commission rates....the number of licensees in the market.  When the number of licensees goes up, average commissions go down, and when the number of licensees drops, average commissions go up.  

Here on the site we get a distorted view because the site is inherently filled with people who have bought and sold dozens and hundreds of homes....but that isnt the general public.  Those of us who deal with the general public on a daily basis (and I work primarily with investors!) can easily tell you 90% of buyers would never to make it to closing without all the hand holding, and calming of fears, and all the stuff that technology cant do.

you're saying I'm bias because I hang out on this site and know real estate transactions.

I think you're bias because you hang out with only people who don't 

either way, my point is not that realtors will go away, simply that the 6% commission will. 

transactional cost and complexity is a barrier, but for the same reason: technology. 

my opinion is that once title policies go digital everything will change. Underwriting for single family homes with good credit can already be automated, legal is what holds it up.  

I'll gladly pay a realtor $500 to let me in a house and be a voice of reason, maybe even $1000! 

but

the days of a pair of realtors earning $15,000 on a $250,000 house are numbered. 

 this is old news and started probably before you were born.. discount brokers have been around for 40 years that I personally know of.

and Vegas you have to be blind not to see the HUGE billboards along the 215 offering discount brokerage services..  Commissions have always been negotiable up and or down.

Now Granted 6% has stuck across the country.. I get that.. and in some markets the are not flexible and or will pass on the listings. 

which is their choice..

you have to separate the knowledgeable investor from the civilian home owner who might buy 1 or 3 properties in a lifetime.. 

Not the investor whose goal is to be a real estate mogul and or is in search of their financial freedom through rentals.. those folks are much more experienced.. 

Be that as it may and I personally have as much if not more experience in these transactions than most on this site.. probably over 4,000 transactions in my career.. but I still hire full service brokers to represent me..  Its necessary to get top dollar and not have to deal with Bozo investors who waste your time or homeowners who need to be led by the hand.. 

Keep in mind at least to the extent with civilians are selling their owner occ home .. many have thousands to hundreds of thousands of dollars worth of possessions.. you let the public just walk through your going to have big problems..  And If your buying homes from wholesalers many times your paying far more than a 6% fee.. 

I mean if I worked as a broker out in low value asset land I would no way work for 6%  and would charge much more.. and many realtors do .. they will charge a bank a set fee to sell low value assets.. like 3k on a 10k transaction I see it all the time. 

I started in the land business and in those days 10% was standard but I sold property that was very tough to sell and I charged 15 to 30% routinely.   But I performed.. I had a set of duplex's in WA back in 05 that a builder was having a hard time selling .. I charge him a 30k set fee for 22 of them EACH.. they sold for 200 to 225k each.. I sold them all in one weekend..  so as stated commissions can go up or down.. 

I choose to go up !!!  

@Alexander Felice I don't think @Russell Brazil was saying that people on BP are biased; just that as experienced real estate investors do not need the same level of assistance through the transaction process due to their experience in doing it many times.  The general public need that.  There is no app that will be released that will talk a buyer off the ledge of backing out of a deal over what may be a minor issue.  That's not even mentioning the value that agents bring to buyers and sellers in savings that are way more than commissions paid.

All that being said, I'm watching this case.  This case has more to do with the way agents get paid rather than how much they get paid.  I really think this is going to set out to protect buyers, but end up hurting them.  If they win, buyers will have to pay their buyer's agent directly or only work with the listing agent or sellers sub-agent.  Since most buyers won't have the funds, they won't get a buyer's agent, and buyer agency was created in the first place to, you guessed it, protect the buyers.

Originally posted by @Russell Brazil :

Yawn, Ive been reading that on this site for 10 years, reading it in the news for 15 years since zillow came around, for 25 years since the mls went online.....yet it still has yet to materialize. Technology has just helped the top 1% of agents gain more market share since we can be more productive. 

a new one we have in our market is I will buy your house for cash call us .. its a website put in your address and they send an automated offer..  I tried it on my home here in Lake Oswego.

their automated offer came in as is no commish no expenses etc for 650k to 725k..  But if I wanted full retail I could get 1.1 to 1.2 which is about right and here are 3 of our hand picked brokers..  So I got calls from the brokers looking to list and no one ever called about the cash offer.. so its just phishing for listings like Zillow and all the others..  

Picked up a 7% listing a few weeks ago. I have to laugh at the guy who claims Zillow does all the work now. Locating the property is about 5% of the total transaction. 

@Alexander Felice Zillow does 0% of the work for me. I don't pay them, I find clients properties and Zillow sure doesn't get the deals over the finish line.

Zillow will buy your house for 20% less than its worth though and charge you a 7%  "service fee"

Originally posted by @Alexander Felice :
Originally posted by @Russell Brazil:

@Alexander Felice probably not. Technology hasnt disrupted the industry and likely wont because the actual reason agents exist is to provide liquidity to the market. Why do 90% of FSBO attempts end up listing with an agent eventually....because the transaction falls apart. Getting buyers across the finish line, keeping things moving forward, being the voice of reason when someone is freaking out of a nothing issue in a home inspection is the only reason the industry exists. There would need to be a major cultural shift by the general public for change to occur in the industry.

Zillow.....how do you think they actually make money? Selling leads to agents. They have no desire to disrupt the industry, because if they did they would be out of business.

There is exactly 1 factor that affects commission rates....the number of licensees in the market.  When the number of licensees goes up, average commissions go down, and when the number of licensees drops, average commissions go up.  

Here on the site we get a distorted view because the site is inherently filled with people who have bought and sold dozens and hundreds of homes....but that isnt the general public.  Those of us who deal with the general public on a daily basis (and I work primarily with investors!) can easily tell you 90% of buyers would never to make it to closing without all the hand holding, and calming of fears, and all the stuff that technology cant do.

you're saying I'm bias because I hang out on this site and know real estate transactions.

I think you're bias because you hang out with only people who don't 

either way, my point is not that realtors will go away, simply that the 6% commission will. 

transactional cost and complexity is a barrier, but for the same reason: technology. 

my opinion is that once title policies go digital everything will change. Underwriting for single family homes with good credit can already be automated, legal is what holds it up.  

I'll gladly pay a realtor $500 to let me in a house and be a voice of reason, maybe even $1000! 

but

the days of a pair of realtors earning $15,000 on a $250,000 house are numbered. 

You don't know as much as you think you do and instead of appearing the fool, you should take the time to learn more. You were probably a toddler when I bought my first investment home and I can state for certain that Russell, Jay and others know way more than I do. I read what they (and others) write and continue to learn. When you stated Zillow does 99% of the work, your obliviousness became obvious. I once met a super-agent who won't take 6% listings, he commands 7% or more - and he gets it. An astute seller often wants the highest performance that brings in the greatest net. It's not about the commission. Once you understand all agents aren't equal, you'll figure it out. In the meantime, continue the journey of learning. It's one of the greatest strengths of BP.  

There will always be a market for the high-end broker full commission and low discount mom and pop shops.  The large discount companies, in the long run, won't survive. Why? There are just way too many costs involved.  You cannot run a brokerage, pay your agents, processors, IT, accounting, marketing on these low fees. Just run the numbers. 

I think technology has certainly lowered the overall average commission of the market but to say it will eliminate is not true.  Ask yourself, If you were selling your $8m apartment in Manhattan.  Are you going to list with the top broker in the area for 5-6% or go with a flat fee 1% broker who has zero market share and experience?  Don't say I will go with the flat fee discount agent that knows the area. LOL, they have no listings. 

Wonder why the rich get richer?  Different mindset.  The poor and middle class see value as in the low fees. The rich see value as getting the right agent to sell the property at the right price, get it done, and as fast as possible.  Their time is what they are valuing. 

I've been a part of 18 transactions here in CT this calendar year so far and 12 of them had a 5% total commission split (2.5% each side) and 6 of them had a 6% total commission split (3% each side) which is about the ratio that is typical for this market and has been for quite some time. 

There are a decent number of discount brokerages in this area, but I do not see them making a huge impact on commissions as of yet and they have been for a while as @Jay Hinrichs pointed out. 

Originally posted by @Russell Brazil :

@Alexander Felice probably not. Technology hasnt disrupted the industry and likely wont because the actual reason agents exist is to provide liquidity to the market. Why do 90% of FSBO attempts end up listing with an agent eventually....because the transaction falls apart. Getting buyers across the finish line, keeping things moving forward, being the voice of reason when someone is freaking out of a nothing issue in a home inspection is the only reason the industry exists. There would need to be a major cultural shift by the general public for change to occur in the industry.

Zillow.....how do you think they actually make money? Selling leads to agents. They have no desire to disrupt the industry, because if they did they would be out of business.

There is exactly 1 factor that affects commission rates....the number of licensees in the market.  When the number of licensees goes up, average commissions go down, and when the number of licensees drops, average commissions go up.  

Here on the site we get a distorted view because the site is inherently filled with people who have bought and sold dozens and hundreds of homes....but that isnt the general public.  Those of us who deal with the general public on a daily basis (and I work primarily with investors!) can easily tell you 90% of buyers would never to make it to closing without all the hand holding, and calming of fears, and all the stuff that technology cant do.

Well said! I would NOT be a real estate investor if it wasn't for my agent. He has literally walked me across the finish line when I first started out in REI and watched my back to make sure I dodged a few bullets. He deserves a lot of credit and is worth every cent I've paid for the fees.

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