Real Estate Commissions. The beginning of the end of six percent.

 An Apple laptop in 1989 sold for $6,500.00; it carried all the power of 16.5 lbs of modern technology.   

In 1989, according to Zillow, the typical real estate commission charged to home sellers was 6.0%. To go from Milwaukee to Tampa, a travel agent booked our flight and found a hotel. The fee we paid was the cost of travel. 

In 2020 Featherweight laptops are a dime a dozen. We’re all travel agents, and we work for free. Real estate broker commissions are typically 6.0%. The last time you saw an advertisement by a real estate company for a house for sale was probably the last time you heard of a travel agent getting her real estate license.  

Even with the current pandemic, homes are on the market for relatively few days. It’s common to see a home under contract in less than six days on the market. What isn’t common is seeing broker fees charged at less than six percent of the sale price. Why is that?

I believe the six percent commission is immune to the pressure of technology, in part because the public accepts real estate myths; without demanding the evidence, and in part because there are too few options for home sellers. There were too few options in 1989 when I started my real estate career, and there are too few today. Essential Real Estate, LLC, is a new option we brought to the market, and it’s well-received. 

Before it was mandatory to work from home, real estate was a natural business to operate from home. Going to an office is not essential to conducting real estate business. Homesellers pay those office rents, and they pay it with their home equity. What advantage does a two-story office building offer to the transaction? What advantage is there to the client that the company has offices all over town or around the state? 

The key to making real estate service fees less of a drain on home equity is to keep overhead costs down and invest in transaction negotiation skill development. A smarter, more capable agent is less expensive to develop and much more of an asset to the public than bricks and mortar and leads capturing systems. 

Essential Real Estate’s Success Fee is $499.00 and 1.0% of the sales price at the time of closing. We counsel the home seller on the facts about offering a commission to a buyer agent. We believe it’s wise to provide something to a buyer agent, but it’s not necessary to give any set amount before you see an offer. The myth of the 3.0% buyer agent fee might be the most significant cost owners have been paying unnecessarily, if not forever, at least since Zillow came on the scene. 

The client who hires Essential Real Estate to sell a $400,000 home pays Essential Real Estate $4499.00. The amount of money the seller will pay to a buyer agent depends on the terms of the Offer, and the terms of the Offer rely on the competition we generate. A reasonable expectation is $8,000. In this scenario, the owner pays a total of $12,499.00 in broker fees. Compare that to a six percent fee of $24,000.00. Essential Real Estate is a full-service broker. We don’t discount our fees. We charge a fair price, but we only charge for the real estate license work. Isn’t that what you expect? 

Author: Tom Meyer, Owner-Broker, Essential Real Estate, LLC Madison, WI

The real estate transaction, disclosure, and confidentiality are the business of a Wisconsin licensee. It's in the transaction where the skill of the licensee, and their commitment to the law where the public is protected or placed at risk. What you see REALTORS do to brand themselves and their firms, promote their service, advertise, and process paper do not require a license. I believe negotiations to create and honor a real estate purchase agreement is where the agent has the greatest value in a transaction. Paying professional fee rates for the administrative services is a choice consumers deserve. Old business model driven commission rates are taxing the home equity of American home sellers. Essential Real Estate was created to put more money in the hands of the consumer by eliminating expenses for the firm and charging a fair price for the real real estate service.

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