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DOJ: 5% Commissions are GOOD for EVERYONE, especially YOU!

By
Real Estate Agent with Keller Williams Realty

On my way out to dinner with a client tonight I saw an email from Inman News about the DOJ creating a website that offers up a real estate commission increase over time chart explaining how real estate commissions, on average, went up a whopping $2,102 between 1998 and 2007. The DOJ goes on to write:

"Unless broker costs were also rising sharply during this period of time, competition among brokers should have held commissions in check even as home prices were rising."

So let's set aside the possibility that the cost of office technologies, large scale brokerage websites (Remax, Prudential Rand etc.) and commercial office space rent increased from 1998 to 2007 and focus on the new costs for seller agents who market properties and buyer agents who represent home buyers.

First, virtual tours, floorplans, higher quality photography, websites, online lead generation services all cost money. Most of these services weren't even heard of in 1998. Let's not forget about the cost of the MLS and advertising in online spaces as well as offline sources i.e. REALTOR.com Featured Listings and Harmon Homes magazine. A lot of these services are associated with online advertising which was in it's infancy in 1998. Agents who advertise both online and offline have now nearly doubled their cost of advertising if they take full advantage of online resources. A seller's agent's ultimate goal should be to market your home aggressively, effectively and consistently to find a buyer. Then, depending on who is representing the buyer's interests, the agent may or may not have to help guide the buyer AND seller through the process of buying a home.

I feel buyer's agents (I exclusively represented home buyers as a buyer agent for most of my real estate career) are misunderstood as they are still a relatively recent development in the real estate industry and (most) buyers don't fully grasp the importance of a buyer's agent. Buyer's agents are there to guide you through the entire transaction from start to finish. A good buyer's agent will:

Help you find a qualified mortgage professional to assist with your finances and give you a solid price range for your home search. There are many mortgage professionals out there just as there are attorneys, doctors, and real estate agents and the sad fact is that there are some very poorly qualified people pretending to be professionals in this field. Why would you risk using the first person you speak to at a mortgage office or from the Yellow Pages with your finances? Your buyer's agent should have a network of quality professionals including mortgage brokers/loan officers who will be able to assist you and do it in a fair and honest way.

Learn what you are looking for and match your criteria with potential homes/communities in the area. The technology invented at the expense of REALTORs to help locate homes in the MLS will allow a buyer's agent to narrow down the homes that match your basic criteria but then the buyer agent will help narrow that criteria down based on factors the buyer mentions that cannot be checked off in the MLS (Multiple Listing Service). For example, a home buyer wants to be within 10 minutes of the local train station to the city but it has to be the train stop that's 75 minutes to the city because the home buyer doesn't want to spend two hours on the train and they would also like to be as close as possible to a supermarket and in a gated community for extra security. All of my buyer clients get a nicely trimmed short list to choose from and their lives are made much easier by not having to view all of the homes that, on paper, match what they are looking for but aren't suited for their needs.

Advise you on your home options and offer a third party point of view on what might work best for you. Another point of view may not seem like it's worth a whole heck of a lot until it pulls everything about your home search into perspective. Buying a home is almost always a compromise on some details because there is no "perfect house" and having an agent who can give you clarity is invaluable. In addition, your buyer agent will help you decide whether a house you like is a realistic possibility. Take into consideration that you may LOVE that house on the corner with the white picket fence and huge master suite but if you have a home to sell in a slow market and the seller is looking to make a quick move then spending your time and efforts on that home aren't really an ideal use of your time.

Negotiate the home price and other terms to help you get the home you wanted. Negotiating on the price of a home isn't just about saying "Hey, let's take $100,000 off their asking price and see what they say." although I've heard the shotgun approach to negotiating has been used by a few unrepresented buyers according to some of my on-site new home salespeople friends. I don't think any of the people trying that approach have ever actually succeeded in purchasing one of the new homes but then again they may not have been all that serious about buying it in the first place. Negotiation is about as much skill as it is an art and effective negotiation requires your agent to tailor your offer in a way that will appeal to a home seller and the seller's agent (remember, you have two people to sell on your offer). In the past I have accomplished this by taking a big picture approach to the offer. For example, if a seller is extremely motivated I might suggest my client offer $X for the home (insert a realistic bidding price) but move their closing date to reflect 30 days from our offer date. Although the price may be lower than the seller was hoping for it will surely get them to reconsider taking less to move out sooner. Your buyer agent can also tailor other parts of the offer including the down payment, contingencies and credits/concessions.

Address issues that pop up during the home buying process. If home buyers and home sellers were able to reasonably sort out every single issue that pops up during a home sale then a fair portion of the agent's responsibilities and positioning in a real estate transaction would be unnecessary but in comes humanity to ruin a utopian fantasy. I have helped keep home sales together where the sellers removed all bathroom fixtures (shower head and all) and replaced the front door door knob with a non-locking interior door handle to spite my buyer clients the day before closing and I once had a home builder who tried to nickel and dime my buyer clients for many "little things" that were standard features like two coats of polyurethane on the hardwood floors and the concrete pad under the step that's not only required for the steps but shown on the architectural floorplans of the home. I can only imagine how chaotic a home buying or selling experience could get with an absent discount/flat fee broker.

Share their network of professionals who will help bring the home sale to a close. I touched on this briefly towards the beginning but beyond mortgage professionals you will also need a home inspector, home insurance provider and real estate attorney (at least in New York) who will each have a major impact on whether the sale of the home goes through. The professionals I recommend in these fields are people I would use myself when buying or selling a home and all are exceptional at what they do and my clients have all been pleased with the services these professionals provided.

and the "little" things. . . Who will be there to take the delivery of your appliances in your new home when you are 1,500 miles away? Provide you with a list of utility providers for the area where your home is located? Make sure you have a copy of the New York STAR application so you can save nearly $800/year (or more with the new Middle Class STAR) on your property taxes?

So DOJ, as a REALTOR who is actively working in the field and certainly far more qualified to assess whether real estate commission averages are excessive, I think your blatant bias towards discount/flat fee brokers is shameful. I'll leave my skepticism of the U.S. government's ability to handle anything properly for another day but allow me to put your drive to lower necessary real estate commissions into perspective: The average income for a real estate agent (according to Salary.com) is $33,915. Let's say the government takes 20% of that for taxes. Using only REALTORs as your test subjects, 1.3 million test subjects at that, the government is at risk of losing as much as $8.9 billion in taxes each year.

In a world where auto executives are making millions of dollars a year while their companies dwindle into bankruptcy I find it hard to believe that $34,000 real estate agents are deserving of your concentrated attempt for endangerment. 

 

Joshua Ferris is an Orange County New York real estate specialist who specializes in Monroe NY new homes and Orange County New York active adult communities

Comments (5)

Don Wenner
DLP Realty - Allentown, PA
Interesting... Good post
Oct 10, 2007 03:09 PM
Bob & Carolin Benjamin
Benjamin Realty LLC - Gold Canyon, AZ
East Phoenix Arizona Homes
Right -- in what universe is 5% going to cover our ever growing costs and expenses.
Oct 10, 2007 03:11 PM
New Jersey Real Estate James Boyer Morris, Essex & Union County NJ Realtor
RE/MAX Properties Unlimited, Real Estate - Morristown, NJ

Here is a copy of the e-mail text I sent the DOJ

I think you have your priorities in the wrong place.    You are going after Realtors and the real estate industry, but you fail to take into account that the average Realtor out there is still making less than 50K a year.  Many of the remedies I have read about that the DOJ seeks will tend to put much more money and control into fewer hands and put many small business people out of business.  Is that what the DOJ is all about putting the little guy out of business in favor of big business??  All done with the little guys tax money.

Oct 10, 2007 03:36 PM
Anonymous
Mark

Joshua,  Shhhhh! 

GO DOJ !!!!  YEA !!!

I am not an economist and so I do not have a bunch of statistics at my fingertips, but maybe the DOJ is making our case for us!!  FIND ME ANYTHING OF COMPARABLE QUALITY AND SERVICE THAT HAS GONE UP LESS THAN 20% IN THE 10 YEARS SINCE 1998 !!  I don't think you can find it.  Even without the 'newer' expenses of being in real estate, find me a moderately succesful agent, who with less than $2,000 extra per transaction, could stay in the business.  Highly unlikely.  As far as the cost to the consumer is concerned, cable service, milk, gasoline, cars, insurance, houses, etc have probably all come pretty close to doubling in that 10 years.  These guys, DOJ, are worrying about what probably amounts to real estate services increasing less than about 20% !! 

AND FWIW, DOJ, THE INTERNET HAS AT LEAST A HALF DOZEN OR MORE SERVICES THAT PRIVATE HOMEOWNERS CAN CHOOSE FROM TO MARKET THEIR HOMES.  SELLING ONES HOME IN AMERICA IS THE MOST OPEN MARKET IMAGINABLE. 

And to top it off, they made this stupid statement.  Read it carefully a couple of time and it will begin to dawn on you just how stupid it is !!   "Unless broker costs were also rising sharply during this period of time, competition among brokers should have held commissions in check even as home prices were rising."

Oct 10, 2007 08:05 PM
#4
Armando Rodriguez
QUEST REALTY SERVICES - Orlando, FL
Orlando Homes 4 Sale, Real Estate Broker-GRI

Great post!

Very true...thanks for sharing it with us!

Take care & good luck!

Oct 11, 2007 02:56 PM