Canada
The pricing model that I think provides the correct incentive for a broker acting for the seller would be a small fixed fee plus a large percentage of the price at which the property would sell very easily. In your example, if the property would sell immediately with no marketing skill whatsoever at $320k, something like $3000 fixed fee plus 20% of the amount by which the price exceeds $320k. Then the broker can still earn a lot, but only if they are truly adding value for the seller, as they clearly did here. Under the current flat percentage, the broker has little incentive to add value, just to get the deal done at any price and move on.
Let’s use the assessed value as the metric for convenience. If the house sells for under the assessed value would they lose money off of the $3000?
I would say its reasonable to have a small fixed fee to cover costs. But I think it should be negotiable - a confident broker might offer no fixed fee but a higher percentage of any excess over $320k.
And sellers will have different preferences. A seller who wants to prioritize speed of sale over high price would not want to offer the broker too much incentive to hold out for a high price.
I recall hearing the analysis of how realtors have little incentive to maximize the price because the amount they make from a somewhat higher price is negligible compared to their interest in just getting ANY sale consummated. Similar studies suggest realtors get higher prices for properties they own, than for properties they simply represent.
Reviving this thread to link to the article about this big story today. Looks like the 6% commission is going to be history. And just in time for us to sell our home!
Excerpt:
“By some estimates, real estate commissions are expected to fall 25% to 50%, according to TD Cowen Insights.”
It would be great if the end of the 6% commission has the desired effect and the cost of selling a house decreases. I have to wonder, though, whether there will be unintended consequences. Will real estate agents really provide the same level of service for less compensation, or will they find ways around that?
I assume we are still free to negotiate a 6% commission and request the level of service we expect. I can see agents offering tiers of service levels.
ETA: I see a problem for buyers’ agents. Will they know what the commission is on a house they’re showing? Will they prioritize showing buyers higher commission houses?
Other countries have much lower commissions and we still manage to but and sell real estate.
The good ones will and they’ll get more business
I am married to a Real Estate Agent in the US. One of my best friends is married to an Estate Agent in London.
My wife spends literally 90%+ of her time looking for listings or buyers. Literally less than half a day a week actually showing houses and doing paperwork. The rest of the time she’s networking furiously or presenting proposals to leads (with a very low success rate). She still makes something of a living. She’s often too honest for her own good. The most common response she has to prospective buyer clients is “you can’t afford the house you want in the towns you want with your income and credit”. She will not promise prospective listing clients any particular price or selling time.
My friend’s wife spends most of the time actually serving clients, most of whom WALK INTO HER OFFICE off the street. A concept practically unknown on this side of the pond.
My impression from hanging out with real estate agents is that if 75% of them disappeared, the rest of them would just be slightly busier.
I suspect it is because it is a job that is fall off a log easy to get into so…loads of people do it.
Those seeking a first-time real estate license in Illinois must take the 75 hours of mandatory coursework to sit for the broker licensing exam. - SOURCE
I have been told that, for really expensive houses (millions) it is not a 6% commission. When your house is worth that much the agents will compete and lower their commission to be the listing broker. Not sure that is true but makes sense to me.
America is different 
That’s true. I knew two people — physics graduate students — who got real estate licenses on the side just for the heck of it.
Yeah, i suspect that if commissions were a lot lower, it would turn into a real job, and not sometime that people did “on the side” while raising children, it whatever. And a lot of the very part time affects would just drop out.
But I guess we’ll find out.
Depend on the market. Where I live agents were doing things like staging the home. But in this market I’m not sure if it is necessary, and if it was, you could get the same stager for a lot less than 3% commission - which runs into the high 5 figures.
I assume they would know. That would be one of the benefits of paying a higher commission. But in some places the market is so tight that no one is going to walk away from a listing for that reason. You’d wind up with a very unhappy buyer.
Why the buyer? Doesn’t the seller pay the broker fees? Is it that the seller inflates the selling price to cover the realtor fees?
It’s pretty much an open secret that buyers agents will lie to their customers about homes that are listed with a lower buyers agent fee. My wife can see listings where they are offering 1% or even 0.5% to the buyers agent. Depending on how much information a buyer has access to directly they may or may not know that “their” agent is bullshitting them when they say that the house
- already has multiple offers over asking
- has been withdrawn from the market
- has failed inspection (common one here is failed a septic inspection)
Many agents refer to cut-rate agents (who charge a 2% or even 1% commission) as “unreliable” even “scammers”. And tell clients that the information available on non-Realtor sources “isn’t always up to date”
If the buyer finds out their agent is steering them away from listings where the issue is that the AGENT would make less money, they’d be really angry. But “good” agents know how to handle these situations.
Thanks. That’s about what I meant. These days it is fairly simple to find things on the market (if not what the fees will be) and an agent refusing to show it could make a buyer mad. Especially when the inventory is low.
AIUI, the challenge came from sellers, objecting to paying 6% of the sale price to agents, which went 3% to the seller’s agent and 3% to the buyer’s. Yeah, I’ve questioned whether the agents were worth 3%, but it never impressed me as a horrible, irrational system. Theoretically, I would support a seller being able to negotiate with their agent to pay them less than 3%, or to offer a home saying buyers’ agents would get - say - 2%.
But I’m not sure what a different system would provide in terms of buyers’ agent compensation. Would the agent contract for a percentage to be paid by the buyer? A flat or hourly rate? Or will most buyers directly contact the seller’s agent for properties they are interested in?