From Facebook: What’s the Deal with Realtor Commissions?

commissionsThere has been a lot of discussion lately about Realtor commissions, and what sellers should expect for the commission they are going to pay. More and more startups are popping up to cut the Realtor out altogether.

So for our Aug. 3  Friday Question, we asked real estate professionals — and our readers — to tell us what they thought about commissions.

It didn’t take much to find a whole fistful of articles (some written by us, even), that discuss the topic of Realtor commissions and disruptors like Open Door and Door. In the past three years or so, we’ve written stories about Door and other companies looking to change the way people sell their homes.

And then there’s this article in Forbes this month, which asks, “Are Real Estate Agents Still Relevant In The Age Of Tech?” The article begins by talking about Zillow and other sites that allow prospective buyers to look through houses themselves, seeing multiple pictures, finding out all kinds of information about renovations, materials used, etc.

“But though tech has allowed homebuyers to do all this legwork themselves, in most cases, they’re still forced to go through agents to finalize the transaction,” the piece said. “And those agents? They get the same 3 percent commission they did decades ago—for seemingly doing a fraction of the work.”

Not-so-fast, the Realtors interviewed said, pointing out that while buyers can look at all the pictures they want, they’re still dependent on a Realtor to actually get them inside the house, and to begin the discussion and dance involved in buying it.

Our readers (mostly) agreed with that assertion, although some questioned how big the commission should be in relation to the amount of work the Realtor did to buy or sell the house.

“Twenty years ago only full-service brokers existed and the average trade commission was $200,” Jeff Kissling said, talking about stock trades. “Today the majority of trades are done online without the use of a broker for around $7. At the same time, full-service brokers still exist.”

“The same thing is going to happen to realtors — a large majority will be out of business while the strong will still thrive,” he added. “Personally I have used Door and recently used a full-service broker and told them to do the deal for 5k or nothing… they did it for 5k.”

“My daughter bought her first house using Door and loved it,” Louise Tice said. “Everything went smoothly with the transaction. She would use them again.”

“I bought my most recent home without a realtor and did the transaction myself with no problems. It was so easy.”

Door CEO Alex Doubet chimed in on the discussion, saying, “We just sold our 400 millionth dollar of real estate last week.”

But one reader said he wondered exactly how services like Door were all that different from full-service Realtors.

“I’d love for someone to define ‘full service’ and how Door is not,” James Bohan-Pitt said. “Door seems to do everything an independent contracting Realtor does in 2018 to really sell a house. They may not do open houses but its 2018 and frankly are they really worth it?  They may not do magazines ads but its 2018, do we honestly think that sells homes?”

“Zillow has 85 percent of the property search market and 50-60 percent of consumers find their own home online according to the National Association of Realtors and simply use an agent for viewing access,” Bohan-Pitt continued. “The MLS has 100 percent of the agents representing buyers. As long as you are in both you can sell your house.”

“Door posts to Zillow and the MLS and sells your house for $5K. For many they see this as an opportunity to save their equity and for buyers, getting 50 percent rebate in the 10s of 1000s some times surely isn’t a bad thing either.”

Bohan-Pitt said that traditional brokerages were going to have to deal with the tech-happy buyers of today’s market.

“Consumers are becoming more and more aware of alternatives and the traditional brokerages are starting to feel the pinch, at least those in the middle,” he said. “Compass is taking the top end, Opendoor is taking the bottom. The middle is where the most disruption is taking place.”

But many Realtors said there was definitely a difference between their services and what they did to earn a commission, and what flat-fee services offer.

“My brokerage that I have had for 15 years offers full service and limited service and usually full service is what clients want even with a higher cost, because just listing a property is one thing but actually actively marketing and showing it and selling it DOES make a difference,” Donovan Lord said.

“Door Realty doesn’t do open houses. In looking at my trends over the last 22 years, over 50 percent of my listings sell via an open house,” said Nancy Wilson. “So, I will say, licensed Realtors know their markets and what works in those markets.”

“That being said, Door charges the seller their $5,000 fee or whatever, they forget the seller still pays the buyer’s agents 3 percent commission. Full disclosure is important at the end of the day,” she added.

CandysDirt.com founder and publisher Candy Evans also joined the discussion, adding that a well-connected agent can make a difference in a sale.

“Also as important as online advertising is to a listing the well-connected agent has a huge personal network of buyers and buyers reps,” Evans said. “A good agent is like a personal shopper who knows what rocks to turn to find buyers. I just don’t see that in the iBuyers or the discount brokers.”

“Agreed!” Cooper Koch replied. “But not all agents have that. You used the key phrase — ‘a good agent.’ Good agents will always have a job, just like good travel agents, good financial advisors, and good insurance agents.”

But Koch said that he’s always wondered about the amount of work it takes to sell one house versus another house.

“My question has always been ‘Does it take twice the work to sell or buy a $350k home as it does a $700k home?’” he asked. “If no, what justifies the doubled commission?”

“Actually it does involve more work,” Evans replied.

“But double? Especially on the buyer’s side?” Koch asked.

“It takes more due diligence,” Evans said.

“I’ve bought $125k, $250k, $350k, $500k and $800k homes. From the buyer’s side, there was no discernable difference between what my agent did on any of them,” Koch said. “I found them all myself online. A standard State of Texas contract was used, with a couple of amendments. The negotiations were all about the same.”

“Yet, I paid more than 6 times in commissions to buy the most expensive one than the lowest cost one. I’m not saying they should have been the same, but more than SIX TIMES seems unreasonable,” he added. “Does the agent earn twice the commission by working twice as much?”

“Again, I’m not saying it should be the same for all houses,” he said. “But basing it solely on a percentage of the home’s price seems ridiculous, especially since buyers are doing so much more of the front end work to find the houses online.”

Some readers said they’d never dream of buying or selling a house without a Realtor.

“There are only three ways to do it,” Darren Dattalo said. “Percent commission, flat fee or hourly rate. Nobody wants to pay an hourly rate. And working for a flat fee ultimately drives to less service for the price or a fixed level of service.”

“In some cases, it’s paid up front whether they get results or not. When you work on commission you’re on the hook to do everything necessary to get the deal done and if you don’t, you don’t get paid. It gives the agent some skin in the game.”

“Agreed Darren,” Nancy Wilson replied. “Having been a licensed realtor for over 20 years, I would NEVER buy a house without a realtor. It’s like a lawyer representing themselves in a court of law. They don’t do it.”

“They hire someone to represent them.”

“If nothing else, the risk level of the transaction and (usually) the sophistication of the parties involved justified the increased commission,” Brent Bolding said.

“It’s the difference between using LegalZoom and an established and experienced law firm,” Katye Sloan said. “If you want the advice to be excellent and the broker/agent accountable, then use an experienced and reputable agent. There is room and a place in the market for both business models.”

“If you want subpar service in anything, go with some flat fee online service,” Ryan Jacobson said. “If you want to sell your home for the highest price you can get, hire the best brokers in town.”

“You get what you paid for, including the people trying to negotiate the most lucrative investment in your life. I’ll always pass on a flat fee service.”

Besides a debate on flat-fee services versus a Realtor, many agents also took pains to explain what a Realtor does to earn the commission.

“Perhaps making sure the client understands the value a full-service agent brings to the table would be helpful,” Dawn Christy-Rejebian suggested.

“I’ve always explained my commission as so: 1 percent goes towards marketing clients house, 1 towards taxes and 1 percent is really mine,” Beth Douglas said. “And yes, a larger house does need more attention, more experience from a GREAT agent.”

“A Realtor is constantly committing themselves to staying current on contract changes and is always working in the best interest of their clients. They take their fiduciary duties seriously and truly believe they are helping someone with one of the most important purchases they will ever make,” Wilson explained. “The same goes with selling a house. For those who don’t think they need a realtor, sell your house yourself.”

“Data shows you will not net what you would have if you would have hired a licensed realtor,” she continued. “My fellow realtors are extremely professional, dedicated to their clients and their profession. We/they work months with buyers/sellers and spend thousands of dollars out of our pockets and never close a deal.”

“How many discount brokerages meet people to do work for the seller or buyer?” Tom Capello asked. “How many make sure the home is up to par,  clean, and the yard mowed? Making sure all the little things are done?”

“I know I work for my seller or buyer 24 hours, seven days a week until all are satisfied. BTW there is no set fee for Realtors, all is negotiable. Even full service.”

Realtor Melissa O’Brien described what it takes to sell a home on the listing and buyer’s side.

“On the listing side, the larger the home, the more preparation it takes,” she said. “You’ve seen the sweat equity at work, and the value doesn’t come from standing in an open house smiling and chatting with neighbors —  it comes from the effort that comes before that, that makes each home shine and gets buyers in the door!”

“On the buyer side, it’s the guidance and expertise — knowing intuitively what our buyers want, helping them stay away from the lipstick on a pig, and poking sticks in every corner trying to find the gem that perhaps hasn’t been mined yet,” she continued. “I had a seller in Mansion Park this year tell me that for the first time, he didn’t begrudge his commission — I earned it, and he walked away very happy.”

“Like any industry, there are good and bad, but certainly shouldn’t all be lumped into one category of grossly overpaid.”

But Lisa Massoud said the current interest in flat-fee services isn’t too concerning — she’s seen the popularity of flat-fee services wax and wane as the market fluctuates.

“When the market is good, discount and flat fee flourish,” she said. “When the market shifts, they tend to dry up. They have always been around to some degree.”

Editor’s Note: Every Friday, we’ll post a hot-button question on our Facebook page. Sometimes, they’ll be serious. Sometimes, they’ll be more light-hearted. Want to take part? Like and follow us, and comment on this Friday’s question.

4 Comment

  • mm

    Question, I guess for Alex Doubet of Door: I am being told that not all Door agents are contract negotiation agents — that only one or two agents on staff are there to actually negotiate every contract. In other words, different tiers of agents.

  • Nice read. Realtors provide a sense of comfort knowing your most precious investment is handled and monitored with care. Real estate is more about feeling and having a sense of security. Agents provide all of that because selling or buying in today’s market is an emotional roller coaster and we are every bit of help. We just got a listing where the sellers were considering selling their home to open door. Those same sellers came to our Open House on a listing that was just cancelled from Listing Spark, and yes we sold within 5 days after listing it. Those were a lot of moving parts that only a realtor can keep up with while establish a trusting relationship. Now we will be helping the new sellers from that Open Door thinking sell their home well above what OD was asking. And that’s without their adjustment for repairs. Needless to say they are happy to work with us.

  • Speaking from a buyer’s perspective, the days when a large part of a realtor’s job was to take the client around to show houses and help with standard closing paperwork are over. Especially in a market as tough as Dallas has been in the last few years, use your extensive network to bring hip pocket listings, get creative on structuring an offer, find out what makes the seller tick – don’t just pop open the door to the property and call it a day, then pocket your commission. We were in the market some months back, and our agent’s advice was always: up your offer. Well yeah, if I offer 50% over list, sure I’ll get it! I’m offering cash at ask or cash slightly above ask on pretty much all bids. If you can’t be bothered to think up a more creative offer that can give us the edge under those circumstances, there are other agents in town. Asked her to structure a 90-day leaseback, her comeback: “the standard contract is 60”. Right… and we’re in an anything-but-standard market! Ultimately parted ways, got a sharp, experienced realtor, she scored us a hip pocket find and helped thru every part of the negotiation. I was more than happy to pay her commission; she’d truly worked for it. All this: the long way of saying that a realtor is still very much relevant these days, as long as they are networked, hardworking, and creative.