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Broker Bryant says, " Are you aware commissions are on a upswing?"

While reading through this month's Broker Agent News, I came across this statement, in an article by Carla Cross. "Are you aware commissions are shrinking? A Real Trends' study pointed out that commissions have gone from an average of 6.1% in 1991 t0 5.1% in 2004. That's a 16 percent price cut! Another study showed shrinking commissions was the largest problem perceived by top producers."

By the way, Carla Cross is the president of Carla Cross Seminars, Inc. and Carla Cross Coaching. Anyway I don't know Carla Cross and this post is not about her but just wanted to make sure I mentioned my source of information. This post is about her statement that commissions are shrinking.

I don't agree with that statement at all. In my market, Poinciana, Fl., commissions are on an upswing. Sellers have realized that the "discounters" are not getting homes sold and the Sellers I have met with, have no problem at all, paying a higher commission to get the job done. In fact, during my listing presentations, commission negotiations rarely come up any more. They just want to sell their house. I list a lot of expired listings and believe me when I say these Sellers are more than ready to move up to a qualified, experienced, full time and full service Realtor. They've been the discount route and it did not work. They want service. They want to hear from their Realtor. And most importantly they want to get their home sold, the sooner the better.

So, from my perspective, Carla Cross's statement, "Are you aware commissions are shrinking?" is incorrect. I think the problem is, the study from Real Trends, that she mentioned, is comparing 1991 commissions with 2004 commissions. Now folks, I may not be the brightest star in the sky, but what the heck does 2004 commissions have to do with 2006. In 2004 we were in a serious Seller's market, in most parts of the country. I even reduced commissions. Why not? I could sell a house in less than a week and have multiple offers for my Sellers to choose from. I was taking 14 day listings. My pitch was simple, "list with me today and I will have your house under contract before the end of the week." My average inventory was 1-3 listings. It was awesome! And then came 2005 and is was even better.

But this is not 2004. It is 2006 and commissions are on an upswing. It is a Buyer's market in most areas of the country. Sellers must be able to compete. And, to do this, they must hire an experienced Realtor that can get the job done. And for this they will have to pay. 2006 has been another banner year for me. Folks are calling me daily to list their homes. I have about 10-20 expired listings to solicit every day. I'm carrying between 20-25 listings and still closing 2-4 deals a month. And my commission has been adjusted upward and may get adjusted again in the near future. Why? Because it takes me longer to get a house sold and because my services are valuable and the Sellers know it. I get results.

Sellers have had some real strong appreciation over the last couple of years so even though values are coming down, most Sellers are still in a very good equity position. The key, in this market, it to get Sellers to look at the real picture, so you can get their home priced right and sold. If you can achieve this, you will not only survive but you will thrive in this market. And Sellers will search you out to do business with you. So, it may not be 2004 and 2005 but 2006 sure looks good from my perspective.

Broker Bryant says, "Are you aware commissions are on an upswing?" What say you?

Posted by Bryant Tutas Broker/REALTOR(R) Tutas Towne Realty, Inc on 11/18/2006 12:47 PM

Comments (58)

commissions, buyers market, service, opinion

58 Comments on Broker Bryant says, " Are you aware commissions are on a upswing?"

NOV

2006

"The Lovely Wife Here"...

I am thinking we should write Carla a letter and pose that question...

I mean really...What '04 has to do with '06 is something I don't get either!

I will draft it, you can read it and we can see if she even responds to that question...

That would be interesting...

TLW "The Lovely Wife"...Fingers On The Keyboard...ROAR!

The agents who do not see this business as a career will always chase business with "I'm cheaper than the next guy you see."

They don't survive long because they can't pay their bills, but they are still there and I don't expect they will disapear.

As a buyer's agent, I have certainly noticed the splits are getting more generous, with numerous bonuses and other incentives being offered as well.

I totally agree with you Bryant - here in Miami it's the same thing - commissions are on an upswing for all the same reasons you mentioned. With so much inventory, you need to get above the crowd and get more professional service and offer more money.

Now Seriously.........you must write Carla a letter.

Good point David. Commissions in Wildwood are on the rise and well as offering bonuses to the buyer's agent. Much like Rick and Ines said there is so much similar inventory on the market that sellers realize they need to do as much as they can get agent's attention. If I have four condos that I can show my people and one has a selling bonus - chances are good that I will get them in to see that unit.

Ines...I will definitely do the letter, for curiosity sake! TLW...ROAR!

In 2005, for the first time, we saw one of our 'major' brokerages drop their co-broke fees 33%. All through this, we retained our 'normal' co-broke. Now, we are offering 25-50% higher co-brokes (from our area 'norm') because buyers have even more to choose from. We've also been raising our 'side' of the commission little by little over the past few years. Sellers/buyers just don't understand that while the internet has made life easier, it still gets more and more expensive every year to do business. And, the more education we obtain and the more opportunities there are, the more places our money has to go in order to be in this business.

Here in california real estate commisions have pretty much stayed the same. The average i have seen in 2%-4%

Bryant:

I must say you are one in the minority whiseling Dixie, more and more are singing the Blues. Oooooh, can I hear TLW in the background saying....aahh, another trip to the mall....Roar!

I have been charging MORE than the average in my market for a couple of years. We are in a down market. Very down. I tell my clients up front that the commission is a small expense to reach their goal--selling the house in less than the 2 year average time on market. As more markets experience a true downturn, not just a correction, they will see this too.

it all goes back to knowing what YOU are worth as an agent. i think that many of us could safely assume that you, BB, know precisely what you are worth in the marketplace-and so do your happy clients! but this is kinda silly, for Carla to use data from 2004...that would be like an appraiser using data from 2004...wouldn't reflect the current market now, would it?

Here is my new quote:
"Statistics are statistically wrong." - Mariana Wagner

There are so many facets to commissions. I JUST heard (2006) that the average LISTING side of commission- across the nation was 2.8%, and the average BUY side was over 3%. So... ? Our personal average Buy-Side is a smidge over 4% and sell side is pretty much the national average. (I just did figured this out last month.)

Do we use LOCAL data? We should, as real estate is a LOCAL business- our country is too large- and has too many different markets to be lumped together into one statistic. Did Carla convince me to buy a ticket to her seminar? Huh? No way. Scare tactics don't work with FSBO's and they don't work with me... (THUD!)

(oops... sorry, I just fell off my soap box. I'm ok.)

Oh! Look! A Butterfly...That needs a bandaid...TLW...ROAR!

I think commissions will stay up because it costs more and is harder to sell a home. I think commissions will go down because we will under cut each other to compete over fewer clients and transactions, as an industry, (the lovely wife will like my termimanology) we will start to eat our young to survive as the going gets tougher. The agents who can deliver the most service for the least amount of money will come out ahead.

I very much agree with many of these comments. Real estate is a local market - too often national statistics are being quoted!

There is a tremendous amount of competition in my market and many of the folks in our office who lose listings say it's because of the inflexibility we have in what we charge. Many agents are hoping for our broker to allow us more flexibility ---- I say "be careful what you wish for"

The "discount" brokerages have a more difficult time selling listings not getting them. The sellers learn (the hard way, i.e. time and missed opportunities) pretty quickly what a real Realtor does and this is good for business. Geez, we even had 2 competing brokers team up against us to get a listing and neither of them were "discount" brokers...the seller was apparently "sold" by the idea that two companies would be marketing his/her home --- guess what... that listing isn't getting much action and it's rarely advertised beyond the MLS system.

You get what you pay for!

Carla says "Another study showed shrinking commissions was the largest problem perceived by top producers." I'd like to see more info on that, but neither link leads to the respective articles. It's quite possible that the second study was done more recently. The link to 'Seller's market' is a 1998 article, and 'Buyer's market' is from 2002. So you're both using info across a wide time range.

I think that both you and Carla are right - just from different perspectives. The flaw with national statistics is that there is such a wide range of deviation. Sharp agents know that the only measures that matter are how they are doing against prior production and within their local markets.

The lesson that I take from your blog is 'do not let others determine your standing within your market.' Agents who are professional, demonstrate value, and get results will be successful in any market, regardless of which direction the trends appear to be heading. You've clearly shown that in several blogs, and Rainers would be wise to pay attention.

I believe it's whatever is relative to the market that's in your area. I also know that lower commissions are normally sown in the good times rather than the hard times. Sometimes commissions are lowered when homes are selling fast and a sign in the yard is about all you need. Unfortunatly, when times lengthen and it takes more time, energy and money to get a home sold, we are fighting upstream against what we or what others did earlier. Good topic!

Thanks for all the comments.

John, I tried to link to her article but it's a members only sight. I couldn't find the Real Trends stats. My links were just explaining a seller's market and buyer's market. My opinion was solely based on my perspective. I'm not a big fan of stats and generalized statements. As you mentioned "do not let others determine your standing within your market". Good comment thanks.

Joanne, lowering commissions to compete may not be the way to go. The problem with going down is that it is so hard to adjust back up. The best way to compete IMO is to offer a better product. But you know that:)

Maureen, 2 years DOM! That would drive me crazy. My attention span is not that long.

Teresa, young'ns with a side of mash potatoes. Up, down who knows? One thing is for sure the future is going to bring change. Our choice is to change how we charge or change how we do business. I chose the latter.

Marianna, Statistics and statistically wrong! I like it. The thing about stats is they can be manipulated to state what you want them to state.

Ron they don't make a box big enough to keep me in. Status quot and I don't get along.

Marianna I love your quote. In this case it's apples and oranges isn't it. BB, two things: First, my listing partner and I are at full commission without any cutback on the second portion. That's all I am really allowed to say; We tell potential listers all the services they will get with us. I tell them that I will have to do MORE marketing, especially target marketing, because it's a buyer's market. I tell them that other agents may check out a commission amount before they check out all details of the house; if we offer them a good commission, ours may be one that is shown.

And I posted this on a different blog yesterday: I did an analysis at Elaine Reese's urging (she had blogged on it when I first got to AR). My five areas (normal market for me) had about one to 2 percent discount brokers for all of 2005 and so far in 2006. And that includes expireds. I said wait a minute; that seems odd; so I went farther away from my normal market area into more affluent neighborhoods. That's where the discount brokers were! So 'them that have wanna keep it' if ya know what I mean. And at least one other person blogged after me that yes, same story in his area. Thought it was mighty interesting that the people who can least afford to pay a full service commission (or at least the ones I would have expected to balk more) are the ones who 'get it' and the middlee class people with disposable income say no way Im flat fee ing it.

Maybe they like to have a hand in the sale of their home; not sure; but anyway, good points here on this blog.

Carole, that's an interesting study you did. It could be that the folks in the more upscale communities are business people, have sold several homes before and could be more qualified to handle the deal. Very interesting finding though.

Bryant.... great post. Now, I will be honest and state that I didn't read most of the comments. My eyes are just tired. It's usually the norm that I do read every comment. So, if someone mentioned this, I am sorry. But Bryant....You hit the nail on the head when you said.... what does 2004 commissions have to do with 2006. And for the fact that houses were selling at record clips and the average realtor, in my opinion had to be more agressive in what they charged and reduced their commissions. And because inventory was moving quicker.

And the 2nd thing that you mentioned that stuck out is that you can charge more because you are good. Well...from reading your blogs, better than good. And for the fact that you can even come into a semi down market and sell a listing that sat on the market prior. Great job in respect to that. Even when more houses might be on the market. This must tell us something about you.

And final...as Cynthia had mentioned.... it's relative to the market that you are in....

OUr marketing plans start at 6% and go up from there. I agree you only get what you pay for = if you want to sell you have to pay someone to do the work. Everything we do cost us money.

Old stats means old news. I wouldn't rely on last summer's stats for anything in our flutuating market.

Stefan is right. Our co-ops are going up. In fact, I did some market reports for three areas yesterday and the DOM was shorter than I expected.

If we're smart, we'll keep our fees where we think they should be. I do not negotiate our fees. That is all that's to it.

Carla Cross is selling a product (sales person and broker manager training), and in order to do that, she needs to push her value proposition... "commissions are down, you're not gonna make enough money, but my coaching will fix all that, sign the contract, so I can get you what you want, in the time that you want, won't that be great?"... sorry, I got carried away...that's somebody else. But with all due respect to her, and the other trainer/coaches, the commission discounters don't usually last through the down part of the real estate cycle. People that have to sell their homes in order to move on to the next part of their lives usually understand (eventually) that you pay for real results (like BB says, AT CLOSING). 2004 in Boise was the very beginning of the up. By 2005, anyone could (and did) sell homes, so it was easy for the discounters and part-timers to bring lower rates. But now, the homes that are being sold are being sold by full-time pros who know their business. Co-brokes are firm, some are higher than they were in the spring, and I haven't heard anyone complaining about the rate lately. All they want to know is "can you get it sold?" The agents in our offices who are selling, aren't talking lower fees, they're talking more services and higher fees.

Being a Loan Officer I get to see a little over 50% of the time what the commission percentage if on the selling side. If I am doing a loan on someone who is also selling a house, part of my calculation to see if they have enough money to do the deal, is to see how much money will be left over after they pay all the Closing Cost on the house that they are selling. What I am seeing is still a lot of 5% deals and very few 6%. But that probably just means that the new trend hasn't hit here yet, or at least in my part of Connecticut.

In Marin, CA. we are seeing a LOT more 3% (and some higher) splits. A year ago they were very rare. Verdict = Upswing here!

BB: I agree with what you said here and fear that you may think that I am in favor of lowering commissions in order to compete... I'm not! You make another very valid point, once you bring your rate down there is little or no chance that you'll ever be able to get them back up again! More than that...if you're going to charge less then it's likely that you'll hafta do less and that wouldn't be in anyones best interest! We as realtors work hard for those $$ and shouldn't be willing to compromise our commission.

I just got my first 6% listing! Our area the average list is 4-5%. I think that there will be an increase again because with BBC's 2- 2.5% having a 3% BBC stands out in this market.

Rather constant here in the KC market. Anything less than 3% on the selling side and you are looking at a property staying on the market longer.

www.searchhomeskansascity.com

NOV

2006

But aren't all comissions negotiable? Is it LEGAL to say that "I wont go under XX%" or "My services start at XX%" or "I do not negotiate my commissions" ? ? Just wondering...

Im not trying to pick on anyone, as I have said similar thnings, but someone brought up the Sherman Anti-Trust Laws, and ..hmmm...

Wonderful post Bryant! I pick up expried listings all the time from the discounters and just by there very advertising pick up many clients that interview me along with them

Mariana-it is legal to say what your commissions are, and that they are not negotiable. That isn't price fixing. Now, if you go to the brokerages in your town and all of you decide that your commissions are going to be x% then you have a REAL problem.

"Do any of you Guys want to"

TAKE A POP QUIZ ON REAL ESTATE LAW

We posted it last night...Have some fun with it okay!

TLW "The Lovely Wife"...Can You Pass The Test?...ROAR!

Bryant - It's agents themselves that are responsible for any decrease in commisions - not buyers or sellers. Though new to the business, I see many agents who either undervalue their services or feel so deperate for a listing that they are willing to work for less (if not the devil).

In a slow or transitioning market this helps to weed out the field. It only takes a few listings sitting on the market for 3 to 4 months while you spend your money (not the seller's) on marketing to bring things to a head.

Again, being new to the business - Am I wrong in this? - It seems to me that their is some kind of bias on the part of many listing agents towards the buyer's agent. Some listing agents seem quick to reduce the buyer side of the commission while maintaining theirs

I am grateful to be working with seasoned agents that are actually increasisng their commissions and showing us how to do the same.

It's pretty ridiculous to base an article on what was happening in 2004. This is a whole new world. I agree that commissions are doing up, and that there is far less resistance. People are starting to compare what real estate agents do, rather than what they charge. Viva Value!

The reason commissions have dropped over the last 15 years is an easy one. Real Estate schools pump out 1000s of new agents every month whom take discounted commissions just to get business. While less than 5% of the agents are still employed the next year, it still impacts the market. Since 1991 the amount of Realtors per market has also increased drastically compared with 1975-1990.

For anyone interested. The Sherman Antitrust law is very misunderstood by people. Especially Realtors who seem to think just talking about commissions is a violation. Well, its not. In a nut shell: If you are not conspiring with others to boycott another company because they charge a different commission than you or you are not conspiring with other companies to "fix" commissions then chances are very very good you are not in violation of Sherman. Below is a link that defines and explains Sherman. Hope it helps.

All though I do believe we should always err on the side of caution, I believe more in the freedom of speech and have no issue with discussing commissions. However, these do need to be generic conversations. As long as we are discussing increases and decreases we are good to go . If we started discussing why the consumer needs to pay more instead of less then we may be crossing a line. Since we are "guests" of ActiveRain, its best to use Xs instead of numbers for commissions when possible. This keeps them from being in the position of having to play judge and decide what's OK and what's not. IMHO

SHERMAN ANTITRUST ACT

When I first started in this business, I had a conversation with another agent about how to present or defend your commission. Interestingly, she never considered "defending" her commission. Her line was something like "oh, you can pay me anything YOU want... just pick anywhere from 6 to 10%..." Well, always trying to learn from the best, I tried it myself with caution... it works great with people who can see the humor!

Interesting point. In a Sellers market like last year, the perception was that commissions were way down, builders were offering flat fees, if anything at all, and people were making money due to the amount of business, rather than the amount of money per transaction. In a Buyer's market, it would make sense to see the opposite trend.

I am not a realtor, but what you are saying makes sense. It comes down to the basic economic rule of supply and demand. Sellers are realizing that the supply of buyers has diminished in relation to what it was before (too many houses on the market and not enough buyers.) Sellers are willing to pay realtors more to make their house more appealing than the rest. In the end, the seller is making less because of paying the higher commission to get the house sold.

I agree 2004 is not 2006! We had s Help U Sell office open up in Boulder in 2004 or thereabouts. I started seeing their signs all over town. A few months ago the office closed down. I can only think of on property I've seen driving around with a Help U Sell sign, and it' been on the market for 6 months.

Yes, that is a problem with Carla Cross' statisics, they are outdated. 2004 is not the present. In 2004, I have seen many, many HUD's with a 5% commission for RE agents. But they are now back up to the norm of 6% (from what I have been seeing in the Lehigh Valley.

Bryant, 2004 definitely has nothing to do with the market of 2006 nor do I have anything to do with flat fee commissions. With my experience in the Real Estate field, my clients know it and are willing to pay for it. If they are not willing and able then we both part company until such time, as they are ready. There will always be folks like Carla and those wanting to pay for little service...that's America.

Eddy, not sure where you're getting those CA stats...not relevant here.

TLW, going over to take a look at the quizy

Bryant~ Thank you. Very good points/info. (Thanks for taking a look at my post, as well!!) It is all making more sense, now. :)

TLW~ It is too cold here to take your quiz ... I may have to take it later... :)

Commissions are rising in our market. This only makes sense as it is taking 3-5x longer to sell a home then last year and that means its that much more costly to market the home.

I am a land specialist. Large acreages, mostly. And mostly for investors interested in creating legacies and private land trusts /\ Our investor -clients are into walking and "feeling" the land. LAND has personality, ya' know...so it takes time to get to know the acreage and what it's about....Our commissions are related to those factors, plus length of time involved to market and attract the "right" stewards of the land.

Our commissions are holding steady.

Great post. Plugged it on my site.

Another great blog from the Broker.

The market for commissions in central Ohio is a double-edged sword. There are so many sellers trying to sell when they don't have enough equity to pay "x" percent and they are looking to save every dollar.

However, we usually try to list at "x+1" and we've had several people sign on the dotted line -- understanding that in this market we are working harder (and hopefully smarter) to sell their home.

NOV

2006

As usual King "Tut"as is right on the mark. Now is the time we can and do command a decent commission for the reasons he cited. Sellers have come to realize they need to offer incentives to achieve sales. I am getting a lot less resisitance. What is your secret to expireds Byrant?

He's still sleeping. I am quite sure he will devulge our method to you. I would hijack this post but he might whack me with that sceptor you gave him! TLW...ROAR!

Commissions are certainly on the rise, especially the buyer's agent side. I personally work more with sellers, and everytime I am doing a CMA for a new listing, I consider the coop agent's commission offered by what would be my competition and more often than not, 3.5% and even 4% is being offered. I am not sure of whether the lisitng agent got a 7% or 8% listing, but if they didn't, then the listing agent is cutting their commission in order to allow an incentive for the buyer's agent.

I sometimes am able to charge 7% especially if the listing is going to require more marketing that usual, but if I can only charge 6%, then I start with a 50-50% split and if the listing isn't moving, then I go to 3.5% for the coop and I cut my side to 2.5%... I guess it's the cost of doing business in a time when sellers are still adjusting to a buyer's market.

As for the anti-trust law that Mariana refers to, NAR has a list of "dangerous phrases" that Realtors should be careful not to use. To complement Bryant's explanation on anti-trust, here is the list:

DO NOT at any time use any of the words and phrases which NAR's Program for Compliance designated As "Dangerous". Some examples of such words and phrases are:

• "We would like to charge a lower commission, but the board has a rule..."

• "This is the rate that all Realtors^® charge."

• "The MLS will not accept less than a 120 day listing."

• "Before you list with XYZ Realty, you should know that nobody is going to work on their listing."

• "If John Doe is really professional (or ethical) he would have joined the Board."

• "The Board requires that all Realtors^® force their sales people to join."

• "The best way to deal with John Doe is to boycott him" or "we don't worry about John Doe; we just don't show his listings."

• "If you valued your services as a professional, you wouldn't cut your commission."

• "No board member will accept a listing for less than 90 days."

• "Let him stay in his own part of town, this is our territory."

• "If he was really a professional, he wouldn't use part timers."

• "X is the going rate in this area."

• "We have to charge that commission since our rates are set by the Florida Real Estate Commission."

• "The standard commission in this area is X."

• "When I see that guy's signs, I just drive the prospect down another street."

• "We've all agreed that any commission below X is unfair."

• "Something's got to be done about that company; nobody can charge such a low commission and make a living."

• "That price‑cutter has no business being a member of the board."

• "You will not get a lower commission from a Realtor^®."

Yael, Great info. I think sometimes we all get a little carried away with being too careful when we talk about commissions. You list is an excellent example of what we shouldn't be doing. Thanks for posting. You should make it a blog post.

NOV

2006

Broker Bryant - Are you a golfer? Sounds like you might be using terms like "upswing"! Is that a golf term or not? I don't know - I don't golf!

DEC

2006

Bryant,

Thanks for the post. You are on the money. If you have read any of my posts that even remotely address this issue, you know that we are getting above 6% in my market.

I am with Marianna Wagner & Bill Williams on this one, a big THUD for generalizations on market conditions!

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