Real Estate Market Goes Up, Commissions Down, Criticism up

In a recent Real Estate Journal they comment on what Inman has recently coined the "agent bubble". Where, as an example there is one licensed agent per 75 people. The number of real-estate agents has grown even faster than total commissions. Membership in the National Association of Realtors has grown to 1.25 million, a 63% increase since 2000.

From the Journal "As home prices soared in recent years, so did the percentage-based commissions charged by agents. Residential real-estate commissions in the U.S. totaled $61 billion in 2004, up 42% from 2000, estimates Real Trends, an industry publication. That's bad news for people who buy or sell homes. But isn't this trend at least making Realtors happy?"

First of all, to use this as reason to bash agents for making more money is short sighted. There are many reasons for the increased earnings per house. One is that these Realtors have sold enough homes to put more people into homes than ever in history. They have been working.

Also, it is commission per house sold. When your commission is based on the sales price you will pay more as a consumer.

Try having an agent go into a listing appointment and offer a flat price of $8,000 instead of 5% which would equate to say $30,000 to list their home.

However, this is an upfront price. Pay me now Vs pay me later. In the current pay me later scenario the agent takes on all the risk if it does not sell. Unless of course the agent is not qualified and hurts the sale, negotiation or processing of the close.

You can even guarantee the sale minus some sort of expense schedule. It will be a very difficult proposition to get the seller to. Why? Because the seller does not want to pay for the sale upfront.

He either is tight fisted or simply is waiting for the proceeds to pay for the commissions.

From the Journal "As a result, there's not even close to enough commission income to keep all those agents in Porsches. The median annual income of real-estate sales agents in 2004 was only $37,600, down from $39,300 in 2002, according to the Realtors. Even that figure overstates agents' well-being. Because most agents are independent contractors rather than employees of the firms where they work, they need to pay out of their own pockets for such things as health insurance, pension plans, driving customers to see homes, and even pumpkins".

I am sure this is a shocker to most consumers who see the glitz, and not the work an agent puts into running a small business. Of course this fly's right by so called experts that see the agent population as a necessary rip-offs. The average agent only does about 5 or 6 sides a year for goodness sake!

From the Journal : "Mr. Hsieh, an associate professor of economics at the University of California, Berkeley, explain what's wrong with America's real-estate brokerage business: Rather than competing on the price of their services, agents tend to spend heavily on marketing gimmicks -- and pass that cost to the consumer." He was referring to a reference in the article about agents flooding homeowners with pumpkins, and Tommy Hopkins type stuff.