Why in heavens name should it cost anyone 5% or 6% to sell their home? The problem with this question is that for every homeowner that asks this question, there's a Real Estate professional asking the same. 
For every homeowner that wants to sell their home for 1%, there's also a Real Estate professional willing to take the listing.
There are many ways a person can get paid.
- Hourly- You get paid a certain dollar amount for every hour you work.
- Salary-You earn a set amount annually, which gets paid out to you in equal installments (monthly, bi-weekly, weekly)
- Salary plus bonus or tips-You earn a set amount plus receive incentive pay for certain achievements (ie reaching sales goals or giving extra good service)
- Salary plus commission- You earn a set amount plus get a percentage of items sold (ie-furniture sales, stock brokers)
OR
- Hourly on Time Billed-A set hourly rate is established before work is commenced and then is billed in accordance with hours worked (ie Lawyer, Accountant)
- Per Service- An amount is established for each service performed and collected accordingly (ie Dentist)
- Commission- You earn a commission on closed sales (ie Real Estate Sales)
The first group involve an Employee-Employer relationship. The Employee performs a service, sells a product or does a task for his Employer's bu
siness. The Employee may get extra pay by way of bonuses or commissions but a base pay is given.
The second group involves independent business people. Lawyers, Accountants, Dentists, Contractors and Realtors. They combine to form a group of people who run their own businesses or own part of business and they expect to make a profit as a result of the risks involved, the money invested and the efforts they put into their business. Otherwise, it would be wiser financially to work for someone else.
Out of this entire group of independent business people, Realtors seem to come under attack from inside and out on a regular basis and the reason is simple. Complete ignorance on all accounts.
A successful career in Real Estate sales requires more than a License. It requires a very specific communications skill set and a tremendous amount of knowledge, perseverance and dedication. They are results driven, organized and expert negotiators and any of the Country's top Real Estate Salespeople could easily be a prized asset in a Fortune 100 Company.
In 1913 Albert LePage founded A.E. LePage, and is the first real estate agent in Canada to make a full-time business of selling homes. His staunch belief in personal service and commitment to innovation will transform the way real estate is sold.
Albert LePage would go onto form the Toronto Real Estate Board in 1920 and in 1922 helped found the Ontario Real Estate Association, to organize real estate activities across the province, promote higher industry standards, protect the public from unscrupulous salespeople, and preserve property rights. . In 1940, he created one of Toronto's first subdivisions, dividing Lady Eatons Ardwold Gate Estate (near Toronto's historic Casa Loma) into 30 lots.
Times were changing. The Great Depression, the Industrial Revolution and World War II. People 
found work in factories, stores and service industries and City's grew one subdivision at a time. There were certain ethics between people back then. People patronized each others establishments and everyone had respect for each other's time and money. Real Estate has always been a business revolving around 100% commission and Albert LePages first salesman would have gotten a percentage of the commission collected. The business model A E LePage worked on made sense.
If Salespeople charged property owners 6% for selling their homes, they would earn enough money to compensate themselves for the time spent advising, consulting and all the other things involved with Real Estate and the public. In doing so, the inquiring public wouldn't hesitate to ask questions, look at houses or attempt to put in an offer because it wasn't costing them anything. The people selling would benefit because it didn't cost people anything to be "interested" in Real Estate, and the more people interested, the more successful the Sellers would be! Everyone would eventually end up paying, but they would pay at a time that they were most likely to have the money. When their home sold!
The percentage system works because it increases with inflation, considering that all of the services provided by the Real Estate Industry experiences the same inflation. So, why in a world of rising fuel, insurance, taxes and business costs, is it easier for a Real Estate salesperson to live at the poverty line...rather then explain how real estate compensation works and earn an income they can support themselves and their family off of? An income which will allow them to be financially stable, and not one that requires input from Government programs and part-time jobs? An income which will actually allow them to save money for retirement so they won't be a burden on the system?
The majority of Agents will say that they don't live on the poverty line, but lets stay with AE LePage and his successor Royal LePage Real Estate. Royal LePage has an award structure for it's Sales People. In my City, Hamilton, Ontario, it starts at the top 25% of sales people, earning "gross commissions" of $65,000 a year. $65,000 Gross would represent approximately $40,000 before tax income. Based on these very true figures, it is safe to say that 75% of sales representatives for one of the Country's largest Real Estate company's earns less than $65,000 gross, or $40,000 before taxes. That's 75 out of every 100 is earning "less" than $40,000! Considering that the average house price in Hamilton, Ontario is $300,000., it would appear that the majority of Agents would have a hard time living in anything above average. This would be hardly indicative of a successful "professional" considering that you could duplicate this income in a lot of other regular everyday jobs and never incur one ounce of risk, get paid holidays plus benefits!
Today, we have major issues surrounding commissions. Home Sellers are being told that they're paying too much and no one is explaining to them why. Instead, as a member of the general public, they have become accustomed to an industry that has supplied them with so much for free, they forget that money has to be generated from somewhere to keep the system going. If the media doesn't tell them, and the industry doesn't tell them, then how are they suppose to know? When a system goes into a chaotic state, it becomes vulnerable. The bottom feeders and sharks swoop in, stuffing their pockets out of a jar they have never contributed to. Yes...that even includes every agent who attracts business by offering a reduced commission, paying the Selling Agent 1 or 2 percent, while they happily except 2.5 or 3% when they sell another Agents listing. They offer little...but expect a lot. I hate to tell them...but the only thing that's keeping them afloat is the ability of the Agent who know's how the renumeration system works.
Why don't Real Estate professionals know the business model? In the late 1980's the industry shifted from a Corporately managed industry, where sales people were employees of a Brokerage and went to an "Independent Contractor" industry, where each sales person runs there own business under a Brokerages' roof. This shift was paramount, because from that point on, sales representatives were their own bosses. A lot of Brokerages didn't care how their sales representatives were performing, as long as they paid their monthly desk fee. The job of the office manager went from managing his sales force to managing desk space and office overhead. It's also not difficult to see how people may think real estate is an easy and lucritive profession. They consider the normal house of $200,000 and do the math. How hard can it be to replace their $50,000 a year job? They jump in, not understanding the business and no one ever tells them why that 6% is important.
Statistics show that only 1 out of every 5 new reps will be in the business in 5 years. If a new rep sold 2.5 million dollars of real estate in their first year at 3% commission they'd earn $75,000. gross and should be able to survive, but at a 2 % average, that same agent would only earn $50,000, hardly enough to pay their expenses and personal living expenses let alone invest in building their business. So there are a few questions every Realtor should ask themselves to figure out where they are...and where they're going:
- If I didn't embark on a Career in Real Estate, how much money would I expect to be making right now?
- If I was offered a full time job tomorrow, what would be the least amount I would work for?
- Does my job as a Realtor leave me feeling successful?
Now, if you're a member of the public, you have to ask yourself these questions.
- Would I be willing to pay a fee to look at a house?
- Would I be willing to pay a fee to have an offer drawn up...even if I don't get the house?
- Would I be willing to pay for a market evaluation?
- Would I be willing to pay someone to hunt for houses while I'm at work?
- Would I like to pay a consulting fee to get professional advice about selling or buying real estate?
- Do I feel comfortable knowing that the young girl at the bank is making more than the person advising me on my largest asset?
So, in a nutshell, this is where the industry might be heading: a fee for service system, unless Real Estate professionals start to understand where "Seller based" commissions came from and why it's not in the consumers best interest to change it. Yes, Agents may be able to survive working 60 hours a week to make $40,000 a year, but why? Why would they, unless they thought they couldn't make more doing something else. So...is Real Estate a place for losers? No, it's not. Real Estate professionals provide an incredible service to residents of Canada and the USA.
Services such as realtor.ca and realtor.com are provided "free to the public" and are supported solely by Realtors...who pay for them from monies generated from commissions on the sale of homes.
The majortiy of online listings, 3rd party websites offering listing services such as online market evaluations and "pay to get posted on MLS" services are supported by commissions generated by the sale of homes.
So, one ask to ask...if you were to take the "salesman collecting commission from the seller" out of the equation...who would pay for these services?
Yes, there is a tremendous amount of profiteering going on and to add insult to injury, the ones getting slammed the most....are the only ones putting into the system! The Realtors! To make matters worse, they're getting hit by members of their own profession.
Realtors must understand and explain to their clients why commissions are what they are, and why they're paid when a home is sold. After 28 years being fully engaged in the business I can clearly see why the system is set up the way it is and why its' always worked. It's the only way a Realtor can sit down with Mrs. Jones for 3 hours and discuss what she should do with her home a year down the road and the only way they can show Billy & Suzie 10 houses, even if they never buy a house. Compensation to the entire industry is provided only when commission is collected from a Seller and until it moves to a fee for service system...it's the only way it can be maintained. So, if people like all the free services they receive from the industry today...they shouldn't feel bad paying for their share when they sell their home.
Comments(3)