The Real Estate Commission Conundrum

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by Roberta Murphy

Real Estate Commission
Real Estate Commission Conundrum

A year or so ago, real estate circles were abuzz with argument and discussion about the pros and cons of discount real estate services and commissions. Discounter Redfin had opened with one agent in San Diego, and their CEO Glenn Kelman promised that real estate discounters would turn the real estate brokerage business either upside down–or inside out (I don’t recall which).

Beating Kelman at his own venture was Iggy’s House, which would list one’s home for free, and a corresponding sales arm that rebates even more than Redfin. In between the two were countless other ventures that vied against each other in real estate commissions and levels of service.

In the ensuing months, we began to see not a decrease in real estate commissions, but instead a rise in commission offerings. Builders and desperate sellers were offering 3, 4, 5, 6, 7 and even 8 percent sales commissions on their properties. (Of course, with inflated commissions we tend to suspect inflated pricing–and share this with our clients.)

It is unimaginable to this writer that the U.S. Department of Justice could even think that the real estate industry is capable of controlling anything, let alone commissions. Brokers have long lamented that trying to control real estate agents is no easier that trying to herd cats. If they can’t convince agents to attend weekly sales meetings, how could one think that they could possibly “set” commissions that their independent contractors charge their clients?

So what is the commission and service situation in today’s more challenged real estate market?

According to the National Association of Realtors, the latest survey of buyers and sellers showed that 83 percent used full-service agents last year, while 9 percent used limited-service agents and 8 percent needed only minimal service.

Of course, I can’t resist adding my own simplistic opinions regarding the issue of full service versus discounted commission/service real estate brokers. These answers of mine came as a result of one questioner’s queries on Trulia regarding the advisability of using a discount real estate broker:

Pros: You may save on commission.
Cons: You may not.

Pros: You may gain valuable experience in selling real estate on your own.
Cons: You may never want to go there again.

Pros: It can be a workable strategy in a seller’s market.
Cons: It could be disastrous in a buyer’s market.

(You seriously ask a very good question. I just can’t resist simple answers–and wish you well regardless of your listing strategy!)

We have been in an indisputable Seller’s market in San Diego for some time. Now, more than ever, real estate buyers and sellers need expert guidance in the purchase and sale (or lease) of their San Diego property. Your ultimate success in the purchase or sale of real estate in the San Diego marketplace will depend not only on expert guidance, but timing and flexibility.

Commissions become somewhat irrelevant when 1 percent in value per month could easily be lost to a sliding market. This makes it more important than ever for sellers to employ the services of seasoned and knowledgeable real estate professionals–and for buyers to do the same.

For additional reading abour these real estate issues:

Why You Always Need a Good Buyer’s Agent

New Real Estate Danger: Cancellation Fees

Real Estate Agent Liability?

Encinitas Bluffs, But It’s No Joke

Palomar College Beefs Up as Agents Drop Out

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4 responses to “The Real Estate Commission Conundrum

  1. Roberta, looks like you have quite a following by looking at your recent readers. Love your site and especially this great article. As evidenced by the stats, consumers for the most part want a full time and full service realtor.

    As we always say, you get what you pay for…

    – gena riede

  2. Like you, I can’t remember a time when commissions weren’t negotiable. Redfin and others,look at the volume of sales nationally, multiply it by 6% and voila here is another business model, they all want a piece of the action, your money and mine. … As for the heavy discounters? Who would know better than they the true value of their service. Terry McDonald Charlotte NC

  3. Gena:

    In Sacramento, you are seeing the same disastrous evidence of real estate agent and lender incompetence as we are in the San Diego market.

    Unqualified buyers were put into loan programs and homes they could never afford by agents and brokers who should not be in the business–at least not until they know what they are doing.

    Far too much of our time is spent cleaning up the messes left by others.

  4. Terry: You are right. Redfin et al depend upon six percent commissions to maintain their business models. It is we who are negotiating commissions day in and day out.

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