Costs to be in business, prices set by competitors, and subjectivity are three factors a writer at Business.com suggests when establishing a service fee. According to this New York Times article of May 1984 said the real estate industry lacked “…vigorous price competition among brokers…” According to the writer, the consequences were that the consumer paid a higher price than necessary because they were unaware that there are alternative(s), or discount, brokers who charge less than the standard industry commission of 6 or 7 percent.
That was then. What about now?
According to a spokesperson for the National Association of Realtors quoted in the article, commission rates arrived at equilibrium due to a very competitive market. Rates were consistently 6-7% in 1984. If that competitive market was the reason, then what’s the reason now? I don’t contend that the real estate commission rate is immune to market changes because of cooperation among brokers. I believe the quoted rate you are most likely to hear from brokers is still six percent of the sale price. The outcome may be similar if firms set their costs before calculating revenue, and project revenue based on a need to cover expenses. By comparing their desired fee to the fees other firms charge, a going rate gets set. Equilibrium is a choice.
Another Approach Puts the Consumer First
At Essential Real Estate, we took another approach to price our service and arrived at an alternative rate for Madison, WI area home sellers.
First, we identified why people sell their homes and where the money comes from to pay broker fees. They sell to free the home equity to use for their next life plan. The equity they desire to use gets reduced by the amount of money paid to the broker. To be a service worth offering, we set out to create an alternative that doesn’t deplete home equity at such an aggressive rate.
Second, we built our company to operate on a budget that leaves room for profit. Real estate businesses can load their debit column with the costs of a host of legitimate but not essential expenses. For example, if a broker wants her company to pay for vacations, cars, gifts, personal promotion, charitable contributions, a soiree or three, and still desire a profit to satisfy a lifestyle, more transactions or more money per transaction will be a crucial factor.
Third, we excel in the essential real estate services. Our fee is only for those services. Real estate agency law sets out the purpose and expectations of a broker. None of those license law requirements have anything to do with spending money on social media, personal promotion, lead generation, brand management, or attendance at motivational seminars in vacation destinations. When a client isn’t paying inflated operation costs, they keep more of their hard-earned equity.
Pricing Is A Choice
A lot of money changes hands in a real estate sale. The amount of money that goes from clients to brokers is a choice. By choosing to leave more money in our home selling clients’ hands, we created a complete real estate service option for people in the Madison, WI area. Our fee is $499 at the time of signing the contract plus 1.0% of the purchase price at closing. We give our clients insight into how the cooperating broker compensation process works, and our clients make informed decisions to pay the buyer agent a fee of their choice. The typical broker fee might be quoted at 6.0% of the sale price in Any City, USA. Essential Real Estate clients are paying, on average less than 3.5% total commission.
We exist to provide skilled real estate representation with our eye on your security and a goal to leave more of your home equity with you. Our fee isn’t the lowest. We don’t intend to be inexpensive. We are exceptional where it counts, and we charge only for what matters.