‘Price fixing’ has never been cool.
6% has been the ‘standard’ real estate brokerage fee since the 1940’s when a conglomerate of real estate brokerages in New York colluded in ‘fixing’ the cost of service to eliminate competing with one another on pricing. They would then just split the commission 50/50 (3% & 3%) with each other when co-operating on a transaction between seller and buyer. This was outlawed in the early 1950’s, but with a simple linguistic twist, the industry at large has since always ‘suggested’ it as the going rate.
Back in 2008, I began to realize a great opportunity to change things when I noticed that my home-selling clients were having to write checks to sell their property, and that I could make a real difference if I was willing to adjust my cost basis for listing services. If their ‘greatest investment’ was going to take a hit due to the shifting market climate, why was it that me and any cooperating brokerages stood to profit at the same rate on every transaction. Especially considering how much more affordable it was becoming for us to market and search for properties in the digital information age.
So, I started doing the math and discovered that it was often entirely possible for my clients to ‘break even’, or even receive a bit of a return from the sale of their home, if I could generate an exit strategy that would include a brokerage commission of something ‘less than’ 6%. I would determine the payoff on their existing mortgage vs the gross equity that they may have earned and find the ‘net proceeds need’ to break even or better. I would then establish the balance of budget that they had to work with and do my best to still make a living while providing them with an exceptional service. I stayed within the percentages protocol, & would derive a set percentage that would often range from as low as 2% on more expensive properties to 5.5% while doing all that I could to cut them a break. I would then list the properties on the MLS & offer any co-operating brokerages the ‘greater portion’. For instance, when I would list a property at 3.5% I would offer the other agent a 2% commission share while retaining 1.5% for myself upon the successful closing of the sale.
This is where the story begins to get interesting. While I may be more of an idealistic altruist than a savvy business guy, I spent several years listening to co-operating agents asking me one question over and over and over again. “Why aren’t you paying 3%?”. For the longest time, I would actually try to explain each listing’s situation as delicately as possible while maintaining that we would all still make a decent living while serving our respective clients best interests. 80% of the agents took serious issue with my rocking of the traditional boat, & there was one particular rebuttal that they would offer that really began to rub me raw. “I’m worth 3%!”, often followed with the most egregious of professional errors “I’m not going to show my clients any property that isn’t paying me what I’m worth…” or some other forms of threatening or discrediting comments.
It is at this point that I need to further clarify some of the industry policies and practices. Many buyers, for many moons, have not ‘felt’ the compensation of their agency as they have been trained for decades that the Seller will ‘cover’ the fee. Reality is such that the Buyer should clearly understand that, when they hire a licensed real estate professional to represent them in a purchase, they are obligated to compensate their agency while their agency is AUTHORIZED to accept payment, in whole or in part, from the Seller. Many agents are scripted and trained to gloss over that particular detail when filling out an agency contract and inserting the traditional ‘3%’ in the blank on the form for the amount of compensation. There are many facets of this value system that I could beleaguer, but in these days & times, I have simply found it to be unjust, unfair, & duplicitous. Oh, the stories I could tell of all of the other ways that agencies are incentivized against their clients best interests…
So… you’re worth 3%?!?
When I left Re/Max and the traditional brokerage construct in 2014 to begin intentionally picking a fight with the industry from within by opening my own brokerage, the average home sale in Northwest Arkansas was $182k. I did the math and found that the ‘average’ agent said that they were worth $5,460 per transaction, & I got to work selling homes in every price range while ‘suggesting’ a $5000 Buyer’s Agency Cooperative Fee. Everything in business has always been negotiable, and we always openly publish the amount that we are offering in all market listings and platforms. Many times, depending on the sales price, market demand, or my Seller’s budget, there is success offering $2500 or less, & on the rare occasion, more. I will never forget the first time that I sold a $207k home and kept my Sellers total cost of brokerage services to $5k while saving him around $7,420 from the ‘standard’ in the process! Over the years, I have continued to save my clients an average of greater than $8300 per transaction. My largest single-sale savings record is $45,700 for a $970k property with a $12,500 fee.
Over the years, this policy of flat-fee fluidity has proven a few principles.
- You have no obligation to compensate another parties’ service provider.
- The HomeOwner/Purchaser of the Information Age is possibly far too trusting of their ‘brand of choice’ or ‘top of mind awareness’, too overwhelmed to remember all of the questions they should ask, too emotive or concerned with the process to be willing to ‘rock the boat’ over a lil ol’ 5-figure savings or improperly educated on how to negotiate and the options available with their ‘greatest investment’.
- If a service-provider / agent does not do the job, the customer will find someone who will.
- If a service-provider / agent has done their job they will earn what they are due.
How do I respond now when an agent asks me “Why aren’t you paying 3%?”?
“That sounds like a REALLY good conversation for you to have with your client…”