Every real estate firm is free to set its commission rate as they wish. There is no set rate for the industry. Check with real estate firms in your community and ask them, “What is your commission rate to sell my house?” If you get a vague answer, ask, “What is the commission rate most often charged, by your firm, to sell a house?” If the research is right, your tally will show an average real estate commission to sell a house in your area is very close to 6.0% of the sale price. Given the opportunity to charge, let’s say, significantly more for far better service, why do we not see firms charging a fee commensurate with their stated ability? Is everyone just average?
Market Conditions and Quality of Service Should Drive Prices. It’s never been easier to attract a crowd of home buyers to a house. Prices for real estate have climbed steadily for several years in a row because of market demand. That wasn’t the case during the recession. Real estate firms charged a 6.0% commission, home prices were dropping, and firms had all of the inventory they could want; it was the buyers who were in short supply. Inexperienced agents and those who could not keep up with the changing market fled the industry for safer jobs. I don’t have evidence to prove this, but those agents who stayed and survived might have had more essential skills than those who left. The shrunk pool of agents available to the consumer might have been the most capable group of agents ever. The least experienced, the least track record, and the most charged the same fee, with few exceptions.
Free Choice Should Also Drive Prices. There are opportunities to be a viable service as long as the service providers are free to design their fee schedule and business as they wish. Free trade laws allow for competition. Choosing not to compete or choosing to deter competitors are decisions that work to the consumer’s detriment.
REALTOR Membership Grows With The Market. The mass exodus from 1.357 million members in 2006 to 999,824 members in 2012 was market-driven. The entry and re-entry of 403,000 members since 2012 pushed the membership to an all-time high of 1.403 million. The rise in membership is market-driven.
Are Real Estate Commissions Market-Driven? With more agents than ever competing to be the listing agent for the lowest-ever inventory of homes, real estate commissions’ price must be in decline. It’s inconceivable that the agents with the most outstanding skills charge the same commission as the agent who just got their license. There is no way consumers will pay the same fee for an agent who has no track record as one who has proven themselves effective in all market conditions. You’d think.
Are there too few alternative business models available? Do firms charge a rate the consumer appears willing to pay, regardless of the agent’s ability, track record, or essential real estate knowledge? Everyone can’t be exceptional, incapable, or average. Business models that are effective for the consumer and profitable for the business owner at a price that rises and falls with the market could thrive in a market where being average and charging average rates is standard.