Monday, August 1, 2005
“What Percent Are Realtors Paid?”
We’ll start off answering the questions posed by searchers of The FSBO Blog with this one. Good question!
There is not supposed to be a set commission rate, legally - that would be collaborative coercion, and violates anti-trust laws in our wonderful United States. In fact, a couple decades ago the Federal Government forced real estate agents to break up their shared database (the Multiple Listing Service, or MLS) into independent, local directories - specifically to prevent agents from collectively setting a standard commission. (It worked.)
These days, according to sources such as the Wall Street Journal, Real Trends, Inman Real Estate News, and Newsweek, the national average for real estate agent commissions is somewhere around 5.1% to 5.4%.
Hovering at this level from around 2002 until today (2005), it’s down from 6% in the 90’s - and many agents indeed would still like to portray 6-7% as the going rate benchmark.
Even though there’s a national average, each locality has it’s own average “going rate” - that can vary from 5% to 7% (Rumor has it that in some areas, such as North Carolina, real estate agents have even been starting creeping as high as 8%). Also, even though that’s the high/average, it’s worth noting that some discount-commission agents will do the exact some work as full-commission agents, JUST AS EFFECTIVELY, and only charge anywhere from 0.1% to 3%.
But the real point to remember is this: commissions are negotiable.
An agent’s listing agreement is just like any other contract you would negotiate for, and nothing is set in stone. There are no laws about how much a realtor’s commission must be, and it matters little to you what the going national average is; what matters is how much your house would sell for and how much cold, hard cash that would translate to for the agent. If you house will sell for over $1 million, it is expected that your negotiated commission percentage would be a fraction of the percentage on a $100,000 house.
~Robert Creek
The FSBO Blog
August 6th, 2005 at 9:54 pm
Has anyone ever asked “What percentage the FSBO sellers are losing?” A commission fee is a tangible measure of cost, but there are numerous ways for sellers to lose intangible dollars, reducing their actual net proceeds, by selling their home without the help of a real estate agent. A bank manager once told me that a typical FSBO seller unknowingly sold for 10% less than those sellers who marketed through an agency. Buyers realize FSBO sellers don’t have to pay a real estate commission, so they make an offer accordingly. By taking out the real estate agency, the seller is losing a layer of legal and economic protection. It would be an interesting study if someone was inclined to delve into the nitty gritty facts of both sides. Just my 26.4 cents worth (2 cents adjusted for inflation).
August 6th, 2005 at 10:29 pm
Carol, you’re exactly right the commission is a tangible cost, and you’re also right that there are numerous ways for sellers to lose intangible dollars. Some of those show up when selling by owner, and some show up when selling with an agent. Selling by owner includes no more guarantee that the owner will lose money than using an agent guarantees they will make more money.
Your anecdotal story about a seller who sold for far less than the market price lacks impact. It seems like every agent has at least one of those. But if that single story stands out to you as the extreme, why do you present it as if that’s what happens to everyone?? You know as well as I that not all stories go that way, and I could counter every story of someone LOSING money by selling by owner with someone who SAVED or MADE MORE money selling by owner.
I have a question for you. Where does this claim come from that “buyers realize FSBO sellers don’t have to pay a real estate agent commission, so they make an offer accordingly”? How on earth can you unequivocally project on EVERY SINGLE BUYER that tendency? I say “prove it.” And I counter-argue that most buyers making an offer on For Sale By Owner homes appreciate the fact that the home price is already discounted BECAUSE there’s no commission - not that it means there’s more negotiation room.
I agree with you - a study about sale prices vs. market prices, INCLUDING SELLER NET INCOME, of FSBO vs. agent homes would indeed be interesting. Another interesting study would be how initial offers for FSBO homes compare to initial offers on agent-listed homes, proportional to the asking price. The fact is, Carol, almost no sane buyer offers the asking price on a home - only a few markets in the entire world enjoy that luxury. A low offer is part of the negotiation process. Now, if you want to say that “By Owner sellers aren’t as good at negotiating the price back up”, that would be far more legitimate than saying “buyers offer low on FSBO homes” - negotiation seems to be a dying art in our part of the world, and it might be believable that an agent could be more skilled in that area. However, there again, that study would need to be done.
But honestly, Carol…anecdotal evidence and stories from someone with a vested interested in the matter simply lack persuasion. There are far better arguments you could make.
And in answer to your original question, no - there have been no searches here for “what percent FSBO’s are losing.”
~Robert Creek
August 6th, 2005 at 11:30 pm
Hi again Robert,
Thank you for your long and newsy reply. I appreciate all that you say. I merely bring up the subject of intagible loss as a matter to consider. It would be an interesting study to look at FSBO sales from the seller and buyers point of view. Unfortunately, this will probably never be done… so we all continue to tout the benefits of OUR service (you vs me). By the way, the FSBO story was not an isolated case. It was a general trend based on one bankers experience. In the meantime I hope we both prosper and I will remain your friendly competitor. Cheers! Carol
March 26th, 2006 at 8:52 am
Here is an article on realtor.com that explains why most fsbo’s decide to list with a Realtor after 30-60 days. Fsbo’s are a great market for Realtors.
http://www.realtor.com/Basics/Sell/Why/Fsbo.asp?gate=realtor&poe=realtor