We can't keep ignoring the Commission Issue!!! This might offend you.

By
Education & Training with Real Estate Expert Witness Support

Because everyone is afraid of the FTC case against organized real estate for supposed price fixing of commissions,  everyone seems afraid to even talk about it.  Well,  I am going to take the chance.   My issue isn't whether commissions should be 6% or 20%.  It is the way it is calculated that doesn't make sense.  Does it really make sense that your commission should be based on how much a property sells for rather than the work that it takes to deliver the services.  If it were marginal differences,  like the bonus a Best Buy person receives for selling a $2000 HDTV instead of the $1500 model,  I would understand.  But,  not when we have houses that sell for $100,000 and others that sell in the millions.  I'm in California,  so my perspective is a little skewed by our prices but I think I can make the argument to everyone equally. 

About 10 years ago,  I was managing a real estate office in Saratoga, Califonia.  Saragota is an upscale bedroom community in the suburbs of Silicon Valley.  One day,  my secretary let me know that one of our Sellers wanted to speak to me.  I immediately expected to have an irrate homeowner,  angry at his listing agent.  I was surprised to learn that this wasn't the case.  He introduced himself and told me that we had his house listed for just a little over $2 Million.   He want further to explain that he had signed a 6% listing and that he was scheduled to pay us in excess of $120,000 to sell his house.  He admitted that his agent was doing a good job was was flaggergasted that we could charge that much for our services.  He owned his own business and made some analogies of how much furniture $120K was,  or that that was 10 weeks of 8 hr per day of his $300 per hour attorney.  He had others but you get the picture.  He also mentioned that it was a relatively hot market and the house would be expected to sell within 30 days. 

I didn't comment as he was ranting but he threw me for a loop when he asked me the next question.  He told me that he had a very good friend who also lives in Saratoga  about 5 blocks way and that we also had that listing.  The difference was that his friends house was listed for about $1 Million instead of $2 Million.  Thus,  he said,  we were only charging that Seller $60,000 for the same service that he was getting.  He asked me if he was going to get a diffeernt sign, more open houses,  more advertising or anything else for that matter.  As you can imagine,  I was a little dumb founded. I agreed that it wasn't logical but that was the way the system worked.  I assured him that we would do everything possible to get his house sold in a professional manner. 

He reached across the desk,  shook my hand,  said he was glad to meet me, and walked out.  We sold the property the following week and collected our $120,000 at closing.

I tell you that story to show you how silly this seems.  I have heard agents say ..... I never work for less than 6%.  Don't you think the comment should be that I don't work for less than $ ______ per transaction.   How is it that an agent will work for $18K on a $300,000 sale but be offended when a Seller wants to discount to 5% on a $600,000,  when they would still receive $30,000 for essentially the same work?

Am I missing something?

 

P.S.  One comment below asks the question if we intend to do more for the $2 Million house.  Yeh, sure.  Brochures always cost more, based on house price.  Maybe we should get paid a fee plus any actual cost we incur like advertising

 

 

 

 

 

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Guy Berry

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Comments (9)

Jamie Daws
Town & Country Realty, L.L.C. - Brown City, MI

Thanks for the new perspective.  I have never thought of it that way.

Aug 13, 2008 06:55 AM
SEO Specialist
Get On the First Page Of Google - Dallas, GA

Wow!  I guess at some point reality sets in.

 

Good post.

Aug 13, 2008 06:58 AM
SEO Specialist
Get On the First Page Of Google - Dallas, GA

Wow!  I guess at some point reality sets in.

 

Good post.

Aug 13, 2008 06:59 AM
George Tars
PalmHomes LLC - Palm Beach, FL

commission is directly related to services provided... if the 2 mil listing gets a treatment that requires a lot of up front advertising spending such as placement to New York times and others as well as CDs and DVD production and more such as Aerial photos and the like  ... then you must charge accordingly ...  

Aug 13, 2008 07:04 AM
Bill Gillhespy
16 Sunview Blvd - Fort Myers Beach, FL
Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos

Hi Guy,  Not sure there is a logic based defense of the current commission structure.  It probably made a lot more sense when housing prices were much lower. 

Aug 13, 2008 07:35 AM
Ron Tarvin
Residential, Investment properties, rehab projects, property management, luxury homes, new construction! - Katy, TX
Broker, Katy, Houston, Cypress 77450,77494,77095

I can certainly see that viewpoint.  One thing that I have thought about, especially as I sit in a market where they average home price is $180,000, is that my commission and home sales price is very connected.  I could not sell a home at $180,000 and afford to live in a place, like much of California, where the average home prices are 3 times that.  So to say that the commission shouldn't be x% of 180k here vs x% of 600K where the cost of living is much higher creates that problem.  For examples like the one you mentioned above,  maybe a flat rate would be more applicable if it truly costs the same to market a $1 million home vs a $2 million home.

Aug 13, 2008 08:19 AM
Jennifer Allan-Hagedorn
Sell with Soul - Pensacola Beach, FL
Author of Sell with Soul

I've asked this question a dozen different ways and never gotten an intelligent response from our industry... So, when an agent sputters "I won't work for free!" when their $400,000 seller offers a (let's say) a 4% commission, but happily accepts a $200,000 listing at 6%.....? Makes no sense. In my market (Denver) a great $400k listing is just as easy (if not more so) to sell as an average $200k one...

The best answer I've gotten? "That's the way we do it."

Aug 13, 2008 08:24 AM
Guy Berry
Real Estate Expert Witness Support - San Jose, CA
Real Estate Broker and Legal Expert

I agree but the post by Palmhomes LLC which implies that somehow we are going to do something special for the $2 million house that we won't do for the $1 million house is a little weak.  Maybe we should be paid based on a fee plus actual costs we inclur,  like advertising

Aug 13, 2008 12:12 PM
Mary Pope-Handy
Sereno Group Real Estate - Los Gatos, CA
CRS, CIPS, ABR, SRES, Silicon Valley

Guy, have you ever read the blogs by Ardell DellaLoggia?  I think she would agree with you on a lot of this stuff and it can be very compelling.

Along those lines, another approach to consider is that of consulting (getting paid for what you actually DO rather than on contingency). A great place to check that out is The Consulting Times, or http://www.theconsultingtimes.com. (Please forgive the link. I do not get any financial compensation for pointing you in that direction!)

I think that there's a lot to be said for opening up the way we look at compensation generally, and I very much enjoyed your story from when you managed in Saratoga. Seems like yesterday when I recalled that you were there!

Aug 13, 2008 05:14 PM