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Listing Agents and Commission Income

Today, we are honored to have Ken H. Johnson, Ph.D. — Florida International University (FIU) and Editor of the Journal of Housing Research as our guest blogger. To view other research from FIU, visit http://realestate.fiu.edu/. – The KCM Crew

The Research

How can agents maximize their commission income?  The options are straight forward.  Agents can choose to specialize in selling property to people.  They can choose to specialize in selling property for people, or they can choose to have a balance between listing and selling closings.  Casual arguments can be made for all three approaches.  Until recently, however, there was no statistical evidence to settle this argument leaving agents to rely on unsubstantiated arguments such as “list to live” and “sell to survive”.

Johnson, Zumpano, and Anderson (2007)[1] directly investigate the question of how agents specialize and the impact of their choices on their commission income.  Specifically, they investigate the effect of specializing in listing versus specializing in selling versus a balanced approach and resulting commissions.[2]  Their findings clearly indicate that specializing in listing dramatically increases agent income.  In fact, agents that specialize in listing average a whopping 81% increase in annual commission income over the typical agent.  Interestingly, agents that seek a balanced approach experience an average annual loss in commission income of 14%.  For those that specialize in selling, the loss in income is substantial at an average loss in commission income of 81% — the exact opposite performance from those specializing in listing.

Implications for Practice

For the first time, agents have clear evidence on which strategy (listing/selling/balanced) is best.  Clearly, they should seek to specialize in listings as the statistical evidence indicates an increase in their annual commission income.  It seems as many have suspected that time spent developing a sound inventory of listings is key to success and a long career in the industry.  On the other hand, specializing in selling or producing a balance between selling and listing closings leads to less income on average.

Obviously, it is very difficult for less experienced agents to be as proficient as more experienced agents in acquiring, selling, and closing listings.  But, make no mistake about it, learning how to be a good listing agent is critical to their ultimate success in the business.  Therefore, while early in their career, an agent might need to “sell to survive”.  They should be aware that eventually they will need to “list to live” a long time in real estate.

Endnotes


[1] Johnson K.H., L.V. Zumpano and R.I. Anderson, Listing Specialization and Residential Real Estate Licensee Income, Journal of Real Estate Research, 2007, 29:1, 75-89.

[2] They define specialization in listings as the ratio of closed listing transaction to closed selling transaction that is greater than 1.1.  For a balanced approach the ratio ranges between .9 and 1.1, while for selling specialization the ratio is less than .9.


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10 replies
  1. RJ Avery
    RJ Avery says:

    At least as the market sits.. Price, Location and Condition of Property is what matters.. I only had received my license three years ago and by reducing my listing commission and not BSing people about all the hard work that goes into listing a property. I have quickly rose to the top of my market… Good Pics, Good Price, Proper Internet Exposure = Sold House… No studies needed for that one.. I have asked multiple full commission style agents what they do extra and they never have anything of substance… Realtors as a whole should stop being so self righteous and realize that its not their suave marketing techniques that sell homes in the age of the internet… Maybe in 1980 but not in 2011

    Rockwall Tx Homes for Sale

    Reply
  2. Robert Alexander
    Robert Alexander says:

    Most of our agents agree with the analysis that Listing agents make more money than buyer’s agents or agents who try a “balanced” approach. In fact, in this challenging economy, it is typically the buyer’s agents who are beat up on price concessions (asked reduce their commission). This is one of the reasons a “buy with me and sell for free (or at greatly reduced price)” is NOT a good strategy either.

    Reply
  3. diane
    diane says:

    I have never met a good, professional agent who did not earn their commission. Listing is more than throwing a property into the internet–at least it always has been for good agents. I have never met a computer that sold a house. I have never met anyone who bought because of ANYTHING in the computer. Buying is usually an emotional decision except in the case of investors. Educated agents are a buyer’s best friend and can save them thousands of dollars. Discount agents are a dime a dozen…

    Reply
  4. Eric Sinensky
    Eric Sinensky says:

    Listings are THE NAME OF THE GAME. I agree you need to list to last . I am surprised at Texas fellow who boasts about cutting his fee? How about offering a generous split so the coop agents can feel good about showing selling and closing a deal. I prefer to show homes that have been listed with a competent agent who mutually feels that our time and skill level and valuable asset.

    Reply
  5. Dan DeMarchis
    Dan DeMarchis says:

    Buyer agents take note: This article is right on the mark. Even I’m guilty of working with more buyers in a buyer’s market. But guess what? It always turns around–eventually. And those with sellable inventory will prevail. Without question the top producing agents in my market are ALL Listers. Hardly any of them even have one buyer side deal over the course of a year.

    Good article to focus on as we work on our 2012 business plan. Thank you KCM!

    @DanSelz

    Reply
  6. RJ Avery
    RJ Avery says:

    Alright so…. Diane… What else do you do to sell a home other than put it on the internet… I have asked tons of other agents this question and have never gotten a response… Also I give them staging advice, flyers, scheduling service, secure showings etc… @Eric Because I dont believe home buying should be a totally emotional process. buy a car with you emotions but buy a house with your instinct and Buying agents should not be pushed or even tempted to suggest a certain home because it has a higher commission. Personally I give the full 3% to a buyers agent as it is my opinion that working with buyers is 10 fold the time and money investment that a listing is… And yes I will boast alot about my system. I got my license in Feb 2008… I have been mostly independent since August 2008 and have gone with a 4% approach and have sold well over 125 homes in 3 years. People want to be listing agents because it is easier and more cush and you ultimately make more money with less time and energy invested its not secret… To me listing a house is the opposite of what Diane said… If its in a desirable area, the sellers keep it nice or fix things you suggest and then price it right it will sell just by simply being on the internet with good pictures, description and ease of showing… And furthermore… Working with buyers everyday has helped be a much better listing agent because Im not behind a desk I am out there with the buyers everyday and now exactly what they are looking for.

    Rockwall Tx Real Estate

    Reply
  7. Mr. K
    Mr. K says:

    From the end notes it appears that the conclusions are based upon data prior to 2007. While I suspect that those same conclusions would hold up over the long run, I’m not so sure about the current market. Right now for non-top tier Realtors it’s probably more important to be closing any type of transaction than to be building an inventory of listings that having marketing costs associated with them. For many Realtors the current mantra might be “If you don’t last, you can’t list”. Hang in there because the spoils go to the survivors. The current market conditions are forcing Realtors to do what they should have been doing all along, marketing themselves to everyone that has a pulse……

    Reply
  8. David Mott
    David Mott says:

    The seller signs a contract that guarantees sales commission to the listing agent (at closing). The seller doesn’t guarantee commission income to any other agent.

    The listing agent always gets paid (at closing). Duh…

    Here’s a study for the brainiacs: what’s with the property appraisal disparity between the city/county, insurance companies, and the ‘professional’ appraisers? There apparently is no standard method.

    If this is too hard, maybe a study should be performed to determine if trees are left alone, they usually tend to get taller. ;)

    Reply

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