Commission in a Market-Based Economy

Prices rise when demand rises. Demand increases as supply decreases. For every action, there is an equal reaction. The US inventory of homes for sale going back to 2012 is proof positive that the theory holds in real estate. What does the history of real estate commission rates say about the idea? Do commission rates have immunity?

Essential Real Estate came into the market as a full-service market-based commission firm. When homes sell in a few days, we can’t possibly spend enough to justify charging the fee we received in 2012. We came in with an alternative model, independent of the usual high cost, high overhead that still burdens firms created in a previous era. Because we save with wise spending on enhancing essential real estate skills, our clients benefit from lower fees. That’s an example of natural action and an equal reaction. 

Prices should rise and fall with demand. Price should also reflect the quality of the product or service. While quality is subjective and objective, a business that claims to be the best would not be out of line to charge noticeably higher prices than the firms they claim to outperform.  

Commission Rates tie to something. But I don’t see evidence that rates relate to any belief in service superiority. Why are there no 10% commission residential firms in every market? Somebody who says they’re the best should be able to charge significantly more.  

We tie our price to demand. I contend our expertise in negotiating purchase agreements to match our clients’ intent is superior to the low expectations tolerated by the public. I believe the consumer should not pay for expenses that have nothing or very little to do with their transaction outcome. That opinion is not widely shared. I understand. Personal promotion, image marketing, lead generating, and client appreciation costs are expensive. If those things were a cornerstone of our business, I suppose we’d expect our clients to pay for them.  

Fortunately, our business’s cornerstone is transaction excellence, negotiation, and representation; the essential real estate services. That’s what the market demands. Our clients pay for only what matters. 

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