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Real Estate Commissions: You Get What You Pay For

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Does it make sense to pay a full commission to your real estate agent in today’s market? Sellers, buyers and even agents are debating what should be charged to assist a consumer in completing a real estate transaction. Forget what the actual amount of the commission is. The bigger question is whether you should pay a ‘full fee’ when hiring a real estate expert to guide you through the complexities of today’s rapidly changing housing environment.

If a full fee was the rule in 2006 when completing a deal was so much simpler, why would you now consider cutting the fee of your agent in today’s tumultuous market? You are depending on this person to help you reach your goals in a sale or purchase. In 2006, buyers were willing to pay almost anything to a seller just to get into a home. Banking entities seemed to be willing to mortgage any property for any buyer. The process was rather simple.

Today, a person looking to buy or sell should be willing to pay a full fee for two reasons:

You need an expert guide if you are traveling a dangerous path

The field of real estate is loaded with land mines. You need a true expert to guide you through the dangerous pitfalls that currently exist. Finding a buyer willing to pay fair market value for your home at a time that there are mass inventories of foreclosures and short sales will take a true real estate professional. Finding reasonable financing can also be tricky in today’s lending environment.

Experts in any profession do not discount their fees; especially when the job is becoming much more difficult.

You need a skilled negotiator

In today’s market, hiring a talented negotiator could save you thousands, perhaps tens of thousands of dollars. Each step of the way – from the original offer, to the possible re-negotiation of that offer after a home inspection, to the possible cancellation of the deal based on a troubled appraisal – you need someone who can keep the deal together until it closes.

When an agent is negotiating their commission with you, they are negotiating their own salary - the salary that keeps a roof over their family’s head; the salary that puts food on their family’s table. If they are quick to take less when negotiating for themselves and their families, what makes you think they will not act the same way when negotiating for you and your family? If they were Clark Kent when negotiating with you, they will not turn into Superman when negotiating with the buyer or seller in your deal.

Bottom Line

We believe that famous sayings become famous because they are true. You get what you pay for. Just like a good accountant or a good attorney, a good agent will save you money…not cost you money.

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29 Responses to “Real Estate Commissions: You Get What You Pay For”

  1. Justin in AZ March 7, 2012 at 10:29 am # Reply

    I agree in principle with you Blog today and enjoy then when I get them daily. I do have an issue with the phrasing “full fee”. Here in AZ, all commissions are negotiable, so Full Fees or Standard Fees are dangerous words to use as each Agent is worth what their skill level is – hence there is no “full fee” as we Agents are not all the same nor are we all equal. There are some better than me and some worse than me and we should all be paid accordingly. Thanks for fighting the good fight KCM – keep it up!

    • KCMcrew March 7, 2012 at 2:56 pm # Reply

      We realize that different brokerages are going to charge different fees. We also realize that fees are negotiable in every state. By full fee, we mean the fee that the agent originally suggested, whatever that fee might be.

      • Justin March 7, 2012 at 3:19 pm # Reply

        No.  If an agent suggests 5% and a friend has used another good agent for 4%, then you aren’t getting what you pay for.  

        • KCMcrew March 7, 2012 at 4:25 pm # Reply

          Each agent had a value proposition that they felt comfortable offering at their stated commission. Our article addresses an
          agent who sets a price for his/her value proposition and then negotiates to a lesser fee for the same work. The amount of the commission plays no part in our discussion.

  2. Tom McGiveron March 7, 2012 at 1:59 pm # Reply

    Amen!!

  3. real estate consultant March 7, 2012 at 4:53 pm # Reply

    The Stanford “study” is a microcosm of the real estate industry dealing with only 800 houses in a very select and defined market. Even so, the Stanford paper points out one of many advantages of an agent: time on market. Time nor room allow for an adequate response but the NAR website has tons of data available.

    • Clark March 9, 2012 at 1:05 am # Reply

      I would be willing to have my house sit on the market a bit longer in order to save tens of thousands of dollars on commissions at 5%. In the age of the Internet, I would expect the time to sale gap to close in the coming years.

      • Paceride March 15, 2012 at 6:20 pm # Reply

        While it’s sitting on the market, you are paying property taxes, electric, etc. Besides, some people don’t have “time”, they want to sell quickly. You are what we refer to as “an unmotivated seller”. You would probably price your home too high, too, since you are “not in a hurry”. You could wait forever.

  4. Stephen McCardle March 7, 2012 at 11:03 pm # Reply

    This is very well said & so true. More incentive is what is necessary -not less.

  5. KCMcrew March 8, 2012 at 11:04 am # Reply

    Sorry for the late reply but we wanted to review the Stanford paper before we
    commented. The Stanford study did not compare different commissions. It instead questioned the value of using a broker at all. The study most often used to quantify the difference garnered by using a broker is the National Association of Realtors’ (NAR) Annual Survey of Buyers and Sellers. The Stanford paper acknowledges that, according to the NAR study, the median price of homes sold without a broker is “27% lower than the median for homes sold by agents”. The authors of the Stanford paper immediately dismiss NAR’s findings on two grounds:

    1.) The FSBO sample in the NAR report is too small.
    “Approximately 83% of sellers use an agent (National
    Association of Realtors, 2003). FSBO sellers are therefore a small, highly
    selected group.”

    2.) The sample is different than the average seller.
    “…potentially unusual characteristics and inclinations; for
    example, they tend to be older and less wealthy.”

    We don’t understand the above reasons for dismissal considering:

    – The NAR sample of FSBOs amounts to hundreds of thousands of
    houses. The Stanford study’s sample was just 800 houses.

    – The sample used in the Stanford study was definitely a uniquely
    different sample than the average seller as it was limited to“Stanford
    faculty and a limited number of senior staff.”

    We hope this answers your question.

  6. KCMcrew March 8, 2012 at 11:33 am # Reply

    We believe that a good negotiator in any field gets more for their clients. The post IS NOT about the commission percentage any agent charges for the services they offer to a homeowner, as these services can differ dramatically from one agent to another. It is about their ability to negotiate. If they can not negotiate their own commission (whatever the percentage), we believe they will also be weak negotiating an offer with your buyer.

  7. Tammy Benkwitt March 8, 2012 at 11:51 am # Reply

    What is not discussed is how much of ourselves we give away free of charge every day.  How many buyers want to look and then not buy.  How many sellers ask us to come to their properties wanting to know how much it is worth – without listing.  Every agent experiences this and accepts these appointments as an opportunity and part of doing business.  But it’s unpaid work just the same. 

  8. Shaynemc March 8, 2012 at 11:54 am # Reply

    I won’t budge on my commission (including dealing with banks on short sales) and also consider myself a good negotiator.  This means I also work hard for my clients as I know how to get them the best price on either side of the deal.  Obviously, agents need to be paid.  I have no trouble being paid hourly rather that on commission – imagine all those people who end up wasting hours of your time will now suddenly move a little bit faster when they’re paying you $20 an hour for your time. 

    • Ramon March 9, 2012 at 1:01 am # Reply

      I think that the hourly model much better aligns the interests of seller and agent. It removes the incentive for agents to underprice homes and push sellers to accept below market offers so that the agent can move on to the next deal. In the end $20 per hour will save the seller a ton vs. the standard 4.5% in our market.

      • Paceride March 15, 2012 at 6:17 pm # Reply

        Under pricing is actually not a danger. Under pricing a home would result in multiple offers and bidding up. It’s the over priced homes that no amount of commission can sell. I challenge you to even point out a home that was under priced.

  9. Justin March 9, 2012 at 1:07 am # Reply

    If the agent isn’t a good enough negotiator to win the listing, she won’t get the chance to negotiate on my behalf.

  10. JT Properties March 9, 2012 at 11:12 am # Reply

    As elsewhere in life, higher price does not always equate with highest value.  The top agent in our area (and probably one of the top in the country by total $ sales) charges only 3.68%.  He does 3x the volume of any other agent in the area and thus his knowledge of the local market is unsurpassed.  His houses move just as quickly as that of other agents.   

    • Paceride March 15, 2012 at 6:15 pm # Reply

      LOL the sellers better hope he doesn’t figure out how much more he could be paid if he went up to 4.5 or 5 even.

    • Robin March 22, 2012 at 10:18 am # Reply

      seriously? those agent who work on the cheap and do “3x the volume” are the ones I most often have to clean up after when they miss deadlines and screw up the inspection responses.

  11. Paceride March 15, 2012 at 6:19 pm # Reply

    The study is from 2007: a completely different market.

  12. Paceride March 15, 2012 at 6:22 pm # Reply

    The better negotiator will get you a better price. The better negotiator is a more experienced agent. You want to pay them more experienced, better agent less?

  13. Ruthmarie Hicks March 16, 2012 at 1:16 pm # Reply

    One of the problems here is that sadly, there are plenty of terrible agents that somehow have made a name for themselves.  They can charge a hefty fee and do almost nothing of value.  In some cases they do more harm than good with their confrontational style.  I know agents that other agents avoid wherever possible. How does this help the seller sell a home or a buyer purchase a home?   When I see some of the listing photos and pathetic promotion for homes worth a great deal of money, I have to ask “What are they thinking?”  An amazing presentation helps move a home and increases showings.  More showings, more offers.  More offers = higher sales price….Yet there is no video or slide show and the photos look like they were taken with a clamshell phone from 2005. 

    On the flip side –  agents who do their job do a ton of work gratis, and that is why the fee is so high.  You want to see homes?  Its FREE!  You want a CMA?  It’s FREE!  You want me to send you listings within your working parameters?  Its FREE!  You want to list your house? Its FREE!  Its all absolutely 100% free with all the risk being taken on by the AGENT in terms of time and money (which can be considerable) until something is actually SOLD.  Don’t get me started on the clients  (and agents) that snake you.  Happens all the time. Bottom line: the consumer holds a good deal of culpability regarding the high cost of doing business. 

    • Robin March 22, 2012 at 10:22 am # Reply

      Amen – and thank-you! My favorite photos? The one with the camera flash in the bathroom mirror with the agent’s body underneath the flash next to the toilet (with the lid open of course…) And to realize sellers actually HIRE these people to handle the sale of their single biggest asset.

  14. Beverly March 21, 2012 at 6:52 pm # Reply

    I agree that $20 is unrealistic, however I have long believed that an hourly fee structure would raise our profession – more in line with any other professional (lawyer, accountant, plumber) who provides valuable services. It also seems more fair to the consumer – as everybody would pay for what time they use…instead of the current model, where only “successful” sellers pay us. I think right now they’re paying an unfair portion. Realistically, why shouldn’t Buyers pay for our services? 

    • DJ Realt. March 27, 2012 at 12:39 pm # Reply

      I agree, Beverly.  We are viewed on the same level as used car salespeople.  Willing to do anything to get that big commission.  I think we would also benefit by taking a fiduciary oath for our clients.  Then there is no impression that we are looking out for anything beyond the wallets of our clients.

    • RMGH April 6, 2012 at 10:42 am # Reply

      We are viewed like used car salespeople because almost anyone with a pulse can get a license.  Until we raise the bar on entry and require at least a college degree and some more extensive formal training, that scenario won’t change.  The training offered is not that great and having earned a high degree in a field that got outsourced, I can promise you that we do not compare in any way to a doctor or lawyer.  

      The fact that we don’t charge an hourly rate gives the public the option to treat us like garbage – which unfortunately,  they often do.  Charging $20/hour, plus a more modest commission might make the consumer shape up a bit.  Last year I had 23 qualified buyers spin my wheels, drink gallons of gasoline and go on endless excursions….and not buy.  1750 miles on my car later and not so much as a “Sorry for all the time and effort” and I knew the meaning of being treated like trash.  With the meter ticking, people might think twice.  It would take some of the risk out. 

  15. Karen March 29, 2012 at 2:15 pm # Reply

    Dont get me started here.  I’m a stager & real estate photographer and I get SO frustrated at lazy agents who let houses present terribly, and look like they used a Mattel Preschool Camera for photos! Crooked walls, reflections in the mirrors, TV sets on, dishes in the sink, KIDS in the photos — really?  And they expect the houses to sell?  Even worse, the sellers who do not make their agents accountable for the commission they are paying them.

  16. Chicago Realtor April 3, 2012 at 4:20 pm # Reply

    Amen. Regardless of the fact that how we are paid is called a ‘commission’, it is a fee for service. I don’t know of any other industry where a professional is constantly challenged on their worth.

  17. Pete April 24, 2012 at 1:52 pm # Reply

    All I can say is I have been investing in
    properties for over 12 years and have always used a realtor. They are well
    worth the cost. A good realtor will take the emotion out of the transaction and
    keep the deal together.  More deals fall
    apart because you have an inexperienced realtor than any other reason.  If you can’t understand this simple part of a
    deal then maybe you should try it without a realtor and after you have suffered
    enough and waited a few months go out and find a good realtor.  Builders and investors are not in the
    business of giving away money so why do we use only the best realtors?

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