Some will have you believe that real estate commissions eventually must fall because the rise of the Internet will marginalize what we do. Disintermediation is the $10 word for the whole process. I personally believe this to be bunk since I never have seen someone actually purchase a home through the web without assistance but that’s another story for another day.
One of the biggest obstacles to change from downward pressure is the role of the real estate broker. It’s here were the fixed costs quickly add up. And it’s also here where the system truly is broken.
Real estate agents simply can’t go into business. They must select a broker under whose (sometimes) watchful eye they will work. Most real estate agents work on some sort of “split” – they keep part of their commission, their broker receives the remainder. This split can start as low as 50-50 and can rise from there to as high as 100% – the agent pays a desk fee, typically, and doesn’t surrender any of their commission.
Agents are not paid directly. As was astutely pointed out a couple of days ago, agents only can be paid by their brokers. Normally this isn’t an issue but when real estate companies start floating checks ahead of filing for bankruptcy or commission checks begin to bounce, agents find themselves not being compensated for the work they have completed.
What agents must do to get paid also is at the whim of the broker. Some require a great deal of paperwork on every file – I can’t tell you how many times I’ve seen “mandatory” forms from other brokers that already are covered by the contract – others want only a bare minimum and expect the agents to keep the rest.
Don’t file your paperwork, whatever the minimum, and you don’t receive a check. Such was the plight of an agent Jay discussed whose broker wouldn’t release her check until a lender signed off on a piece of paper approving a short sale after closing already had taken place and her buyer had purchased the home. The lender’s response to the agent’s plight: take a hike. Here’s hoping she got paid.
From Dan Melson on Searchlight Crusade last week:
Be certain you understand the real costs involved. They may be large, or seem large, but doing without any of the professional services that have evolved is likely to end up being a lot more expensive in the end. If one is cheaper than another, there is a reason. Find out why; and while it may be that someone is just comfortable making less money, other explanations are such as they do not provide important services that really do make a difference are more likely to be closer to the truth.
Don’t expect them to tell you this, though, especially since most people will just believe fairy tales like “full service – discount price”, and won’t investigate why prices or loan quotes are lower. It shouldn’t surprise any adult that sometimes it’s worth paying extra.
Until a home sells, all of the financial risk for the marketing lies with the agent alone. Not the broker. Not the seller. The agent. To be able to pay for marketing, an agent needs to have a certain level of income. Marketing costs money – it’s a simple fact.
Agents, however, tend to have a lot of hands reaching into their wallets – NAR dues, NAR assessments for ridiculous “public awareness campaigns”, MLS memberships, monthly desk or office fees – and some of the largest hands belong to their brokers. Not only does this cut into funds for marketing but also in flexibility to help a transaction get done.
From Ardell DellaLoggia on Seattle’s Rain City Guide two weeks ago:
How does a company survive? If the company has to charge the agent more and more to survive, causing the agent to charge consumers more and more to survive, well then maybe the company should quit. OR brokers should charge agents less, so they can be free to price their services more fairly, and maybe all will become stronger as a result.
Last summer I was contacted by a client moving to the Valley. We signed a buyer broker agreement and I showed her and her husband several homes. We remained in contact as they planned a second visit; I previewed homes in the interim and essentially knew what home they were going to buy before they ever saw it. (I was right, incidentally.)
More than a month into the process a third-party relocation company stepped in and demanded a referral fee be paid for this client that never was referred. I said no. I won.
This morning I learned that my brokerage is taking an extra 5% out of my commission for my closing tomorrow because the client was referred by agents at another Century 21 office. Their ability to do so is buried in the relocation and referral guidelines of the firm’s handbook so legally, it’s legit. Realistically, though, I’m paying my broker an extra 5% as a referral fee for a client never referred to me. Legally legit. Logically farkakt.
(You knew the Yiddish was coming. You just knew it mein kinderlekh.)
What can I do about this? What recourse do I have? None whatsoever. Well, except to leave for another brokerage – a major pain in the tuchas.
This isn’t to say the brokers are getting rich either – look at what happened with RE/MAX 2000 locally. Or Las Vegas’ Century 21 Aadvantage Gold, which filed for bankruptcy. Or even Century 21 Metro Alliance, which did the same.
Some would-be renegades and their television cohorts would have you believe that the average commission is “sancrosanct” or other such garbage. Rather, it seems to be the tipping point between survival and the chocolate shake machine. Not everyone can get by on the surprisingly thin margins that exist. And that’s okay. There are way too many real estate agents anyway, especially here in Phoenix.
But thin margins also leave little room to maneuver on behalf of the consumer. Something needs to change. And is it easier for the change to come from brokers who can continue to streamline until they’re running at top efficiency, or individual agents who likely already are running as lean and mean (figuratively, in my case) as possible.
I know my answer.