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Give consumers what they want, ask for more in real estate commissions

Technology has made this housing crash more bearable, not easier, so why haven’t real estate commissions increased tenfold? They haven’t, yet there is still this burning need to negotiate from a floor – do you think your home seller respects this? No way, they love easy prey, sucker.

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real estate commissions

real estate commissions

An innocent question posed in a Facebook group this morning was about the 6% commission debate and why commissions are 6% if it’s a myth. It is a simple question with a simple answer that I can give because I am no longer a Realtor, and I’m absolutely entitled to my opinion whether you like it or not, as are you.

The 6% isn’t really a myth, albeit the average actual paid real estate commission is much lower at around 5%. It is a fact that the commission is negotiable, but what consumers and Realtors have never understood is that from a sales perspective, that 3% per side has become more of a fictitious floor than a ceiling. When you ask a Realtor why, quite honestly, no one really knows, but the default knee-jerk response is, “but commissions are negotiable.”

Sure they are, it’s an absolute fact, but again, from a sales perspective (a lesson for any sales related business, not just real estate) negotiating from the floor is a failed proposition as a business.

Sure, people like to say it’s so easy to list a property because they have an iPad now, and possibly a responsive MLS they can enter data into, but quite frankly (and I know listing agents will mostly agree, or at the least successful ones anyway) the expectations on listing a property have grown exponentially, as well as the expectations on the property agent themselves. The amount of hours it takes to actually hammer a square transaction through the round hole of closing has indeed increased tenfold – this is just a round number factoring shortsales, troublesome financing, or combating a neighborhood marred by failed mortgages and foreclosures.

Technology has made this housing crash more bearable, not easier, so why haven’t real estate commissions increased tenfold? They haven’t, yet there is still this burning need to negotiate from a floor – do you think your home seller respects this? No way, they love easy prey, sucker.

As milk prices have increased, gas prices have exploded, the cost of paper, ink, technology, supplying real estate porn to aggregators, the costs of featuring property within online environments and so many other factors of day to day life and business have risen due to the cost of doing business, yet real estate commissions have remained the same – around 5%?

These costs have to be passed on somewhere, and to be quite blunt, volume listing of property is costly and in high demand – just ask Trulia, Zillow, and Homes.com and others why these portals are not out acquiring their own property listings? Their answer will be that it’s not profitable. And why aren’t consumers uploading their own properties for sale in greater numbers? Because in the end, real estate search sites cannot support the consumer demand side in service of the listing, and that’s a fact. Instead, that’s laid on the backs of the listing agent and broker in their model – another cost of doing business.

So, in summation, I’m not going to tell you what you should be charging as a real estate commission per side, but I do think listing agents that are really in business have to look at the reality of the cost of doing business. Buyers agents say every day that it’s easier because of technology, but that’s not true of the listing side.

It wouldn’t surprise me if in this very year you don’t see listing brokers increase their commissions for their side of the transaction and lower the buyer side offering, and if they are the smart sales professionals I believe them to be, that fictitious floor and cieling could burst upwards to 8 or 9%, and why stop there? In some ways the cieling is regulated, but I’m not sure that’s really been challenged in court. If you’re truly negotiating commissions, shouldn’t you negotiate from a position of strength? It’s just good business.

So I say that each broker needs to do a real analysis of their business models and listen to their consumer – they want to negotiate, and it’s about time listing brokers gave them what they’ve asked for.

Benn Rosales is the Founder and CEO of The American Genius (AG), national news network for tech and entrepreneurs, proudly celebrating 10 years in publishing, recently ranked as the #5 startup in Austin. Before founding AG, he founded one of the first digital media strategy firms in the nation and also acquired several other firms. His resume prior includes roles at Apple and Kroger Foods, specializing in marketing, communications, and technology integration. He is a recipient of the Statesman Texas Social Media Award and is an Inman Innovator Award winner. He has consulted for numerous startups (both early- and late-stage), has built partnerships and bridges between tech recruiters and the best tech talent in the industry, and is well known for organizing the digital community through popular monthly networking events. Benn does not venture into the spotlight often, rather believes his biggest accomplishments are the talent he recruits, develops, and gives all credit to those he's empowered.

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28 Comments

28 Comments

  1. Jeff Brown

    April 9, 2012 at 12:53 pm

    Not sure what’s ‘regulating’ commission ceilings, unless you’re referring to market forces.

    Though I’ve known a few top producers who consistently get 7-8% on a large portion of their listings, since the late ’90s, they added value in return.

    I can’t see commissions rising, at least not industry wide. Just don’t see it.

    • Benn Rosales

      April 9, 2012 at 1:01 pm

      Nope, not market forces, they’re (regulation) real life reality on the ceilings on builders, and lenders that red flag transactions in residential real estate. I’ll investigate a little more and bring you a case study as I’ve had to deal directly with this issue. 🙂

      • Jeff Brown

        April 9, 2012 at 1:11 pm

        REO/ShortSale specialists have long told me about lenders ‘red flagging’ commissions they feel are too high. That’s ‘market’ forces, imho. They’re the 800 pound gorilla in those transactions, so the brokers knuckle under 99% of the time.

        There’s no gov’t agency of which I’m aware telling brokerages how much they can charge. Have I missed a new development? Thanks

        • Benn Rosales

          April 9, 2012 at 1:14 pm

          This is another article all together, Jeff. 🙂

  2. Greg Cook

    April 9, 2012 at 5:20 pm

    Benn, in markets dominated by REOs and short sales. the 3% is the ceiling not the floor. The banks dictate the commissions paid and they have absolutely no desire to pay for services rendered.
    The “wholesale approach” of awarding listings makes the concept of “value added” as archaic as a rotary phone.

    • Benn Rosales

      April 9, 2012 at 5:33 pm

      In that case, you would have to determine it by the hourly rate, and if you’re making less than minimum wage per unit on a case by case basis, and being required by a non-human, ie, a corporation to earn a wage less than the minimum based on any requirements set by that entity that would require you to work more than 40 hours in a work week, then you could potentially be seen as an employee and demand over time and benefits by that employer.

      Now if all you’re required to do is enter it into a database, and put up a sign, then yeah, 3% is a good day when and if the deal gets done – ever.

      Again, It’s your business model, and your decision, but in macro there is no shortage of properties that need to be sold making it even more competitive and more valuable.

  3. Brian Hickey

    April 9, 2012 at 5:21 pm

    Benn,

    Hope you’re right, though IMO the real estate transaction model is headed more towards direct-connection between buyers and sellers (of course, agents may play a part on one-side or the other).

    Under this model, which is perpetuated by the Internet, commissions will head south, possibly big-time.

    We’ll see.

    Thanks,

    Brian

  4. Cristine Gritz

    May 10, 2012 at 6:32 pm

    When we finally get to closing…we have made about a dollar an hour!!! LOL We spend a lot of time and money on our clients. It takes at least 30 days to close. We don’t make that much in the grand scheme of things. How many slam dunks do we get nowadays??? Not many. Buyers take their sweet time and Sellers want to price their listings too damn high. 3% just isn’t enough as far as I am concerned!

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Hobby Lobby increases minimum wage, but how much is just to save face?

(BUSINESS NEWS) Are their efforts to raise their minimum wage to $17/hour sincere, or more about saving face after bungling pandemic concerns?

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Hobby Lobby storefront

The arts-and-crafts chain Hobby Lobby announced this week that they will be raising their minimum full-time wage to $17/hour starting October 1st. This decision makes them the latest big retailer to raise wages during the pandemic (Target raised their minimum wage to $15/hour about three months ago, and Walmart and Amazon have temporarily raised wages). The current minimum wage for Hobby Lobby employees is $15/hour, which was implemented in 2014.

While a $17 minimum wage is a big statement for the company (even a $15 minimum wage cannot be agreed upon on the federal level) – and it is no doubt a coveted wage for the majority of the working class – it’s difficult to not see this move as an attempt to regain public support of the company.

When the pandemic first began, Hobby Lobby – with more than 900 stores and 43,000 employees nationwide – refused to close their stores despite being deemed a nonessential business (subsequently, a Dallas judge accused the company of endangering public health).

In April, Hobby Lobby furloughed almost all store employees and the majority of corporate and distribution employees without notice. They also ended emergency leave pay and suspended the use of company-provided paid time off benefits for employees during the furloughs – a decision that was widely criticized by the public, although the company claims the reason for this was so that employees would be able to take full advantage of government handouts during their furlough.

However, the furloughs are not Hobby Lobby’s first moment under fire. The Oklahoma-based Christian company won a 2014 Supreme Court case – the same year they initially raised their minimum wage – that granted them the right to deny their female employees insurance coverage for contraceptives.

Also, Hobby Lobby settled a federal complaint in 2017 that accused them of purchasing upwards of 5,000 looted ancient Iraqi artifacts, smuggled through the United Arab Emirates and Israel – which is simultaneously strange, exploitative, and highly controversial.

Why does this all matter? While raising their minimum wage to $17 should be regarded as a step in the right direction regarding the overall treatment of employees (and, hopefully, $17 becomes the new standard), Hobby Lobby is not without reason to seek favorable public opinion, especially during a pandemic. Yes, we should be quick to condone the action of increasing minimum wage, but perhaps be a little skeptical when deeming a company “good” or “bad”.

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RIP office culture: How work from home is destroying the economy

(BUSINESS NEWS) It’s not just your empty office left behind: Work from home is drastically changing cities’ economies in more ways than you think.

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An empty meeting room, unfilled by work from home employees.

It’s been almost six months since the U.S. went into lockdown due to COVID-19 and the CDC’s subsequent safety guidelines were issued – it’s safe to say that it is not business as usual. Everyone from restaurant waitstaff to start-up executives have been affected by the shift to work-from-home. Even as restrictions slowly begin to lift, it seems as though the office workspace – regarded as the vital venue for the U.S. economy – will never truly be the same.

Though economists have been focusing largely on small businesses and start-ups, we are only just beginning to understand the impact that not going back into the white-collar office will have on the economy.

The industries that support white-collar office culture in major cities have become increasingly emaciated. The coffee shops, food trucks, and food delivery companies that catered to the white-collar workforce before, during, and after their workday, are no longer in high demand (Starbucks reported a loss of $2 billion this year, which they attribute to Zoomification). Airlines have also been affected as business travel typically accounts for 60%-70% of all air travel.

Also included are high-end hotels, which accommodate the traveling business class. Pharmacies, florists, and gyms located in business districts have become ghost towns. Office supplies companies, such as Xerox, have suffered. Workwear brands such as J. Crew and Brooks Brothers have filed for bankruptcy, as there is no longer a need to dress for the office.

In Manhattan – arguably the country’s most notorious white-collar business mecca – at least 1,200 restaurants have been permanently lost. It is also is predicted that the one-third of all small businesses will close.

Additionally, the borough is facing twice as many apartment vacancies as this time last year, due to the flight of workers no longer tied to midtown offices. Workers have realized their freedom to seek more affordable and spacious residence outside the city. As companies decentralize from cities and rent prices drop, it isn’t all bad news. There is promise that particular urban white-collar neighborhoods will start to become accessible to the working class once again.

Some companies, like Pinterest and REI, are reporting that their shift to work from home is in fact permanent. The long-term effects of deserted office buildings are yet to make themselves evident. What we do know is that the decline of the white-collar office will force us to reimagine the great American cities – with so much lost due to the coronavirus, what can now be gained?

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Business News

2020 Black Friday shopping may break the mold

(BUSINESS NEWS) Home Depot states their new plan for deals and discounts over two months, in place of a 1-day Black Friday event.

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Men shopping in an empty aisle, Black Friday to come?

Humans change and adapt – that’s just in our nature. Retail stores have struggled to maintain their sales goals for years as more and more people move to ordering online. Online prices still seem to be within customer expectations and often come with free shipping. Additionally, people that may have preferred to shop in an actual brick-and-mortar store have changed their shopping habits dramatically in 2020; it’s hard to social distance and be safe in crowded stores or in small aisles. Black Friday may be next to change.

Amazon and other big box store’s online ordering platforms have simplified getting what you need delivered right to your front door. According to Statista, “Amazon was responsible for 45% of US e-commerce spending in 2019 – a figure which is expected to rise to 47% in 2020.”

Retailers count on the holiday season, specifically Black Friday deals (the day after Thanksgiving), to bring in up to 20% of their annual revenue. It’s hard to just remove that option completely. But considering the times of social distancing, wearing masks in public, and especially avoiding large crowds, the tradition of Black Friday will need to look different this year.

It will also be interesting to see what supply chain disruptions from early 2020 will have the most effect this shopping season. We saw predictions in March that said the United States would see the biggest disruptions in about six months. Black Friday falls right on that timeline.

Home Depot has announced their plans to go ahead and give the deals over a two month span, starting in early November through December (both online and in stores with the possibility of adding some special deals around the actual Black Friday date) to help encourage a more steady stream of shoppers versus so many packing in on the same day.

The home improvement chain has actually seen a great sales year. This is likely due to people working from home and being interested in doing more home projects (and possibly having a bit more time to do them as well). As of May 2020, “The Home Depot®, the world’s largest home improvement retailer, today reported sales of $28.3 billion for the first quarter of fiscal 2020, a 7.1 percent increase from the first quarter of fiscal 2019. Comparable sales for the first quarter of fiscal 2020 were positive 6.4 percent, and comparable sales in the U.S. were positive 7.5 percent.”

Home Depot, along with many other retailers like Walmart, Target, and Best Buy have confirmed that they will be closed on Thanksgiving Day, which may not be new for all of them but has always signaled the kickoff of the holiday shopping season.

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