Why The Hell Are You Still Working For Just Commission?
by Glenn Freezman
Dean M. started his career in real estate about
eight years ago after the tech bubble burst and he found himself sitting at home without a lot of prospects facing him. While the overall economy was in a slump, the real estate market was still going strong and looked like a good place for Dean to get back on his feet.
Since then Dean has built up his practice, honed his skills and made a fair living working as a buyer’s and seller’s agent. Currently he has five clients he is working with; three on the selling side and two buyers. This past weekend Dean spent the day with both of his buying clients looking for homes, and he set up and ran an open house for one of his home sellers. For all intents and purposes, Dean is as busy "as a one armed paper hanger".
However, regardless of how much work and effort Dean puts into helping his clients, if for some reason his sellers can’t find a buyer before the agreement time is up or his buyers can’t find a suitable house to buy, then Dean stands to make absolutely nothing to exchange all his time and hard work.
According to statistics published by the NAR, nearly 3/4 of all home buyers fall through. We all know from experience, especially in a tough market, that a lot of time and money is spent marketing and promoting houses that never come under agreement.
So what can be done?
Well, on the buying side at least, buyer’s agents can make a decision to work for straight commission or to create a deal with prospective homebuyers in which they will return the amount of commission earmarked for their pockets to the home buyer in the event that the home buyer makes it all the way to the closing table. In exchange for this deal, the home buyer will agree to pay them directly for their time and services based on either a task-based or hourly based model.
Yes, it's highly possible that commission payment may be three or four times greater than the amount of money an agent can make working for straight pay. However it's also highly possible that even deals that are based upon direct payment will falter and not make it to the closing table.
Alternative compensation agreements are not for all situations. Some buyers don't want to assume the risk. Some buyers are perfectly happy to let the agent do all of the heavy lifting in exchange for a bigger paycheck. However, by leaving that money on the table as an incentive many realtors are also finding that they can drive new business toward them and have a chance to work with very serious homebuyers who have all intentions of making it to the closing. However, even in these instances where money is being left on the table, a guaranteed payday far outweighs any theoretical one. At the end of the day the question that needs to be answered is "is a $2000 payday that is guaranteed better than a $6000 payday that isn't?"
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