Why are real estate agent commission so high? - Agentsdeal
Why are real estate agent commission so high?
November 10, 2017
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Can I buy a home without paying a Real Estate Agent Commission?
November 26, 2017

We believe that the common complaint of principals (buyers and sellers) is that the real estate agents’ commission is either too high or there is not enough work done for the commission earned. High commissions represent significant overhead on a house sale or purchase. Seller physically loses money on commission; buyer inherits negative equity as soon as he/she purchases a property. This high “closing costs” largely comprised of commissions, make real estate investments unattractive to a large number of people, and often is one of the biggest reasons that cause principals to either lose money or be skeptical of real estate buying or selling.

 

Tips to get Discounted real estate agent - Agentsdeal

The truth is that yet most agents still cannot make it and go out of business in 1-2 years. There are many reasons behind this

  • One of the reasons is that commission is “contingency based” – agents earn only when a transaction closes
  • The commission is also high due to high wastage in real estate industry
  • Not only there is a listing agent and buyers agent, there is most often a listing broker and buyers broker additionally involved which also get a significant cut of the commission.

READ ALSO – Why is real estate agent commission so high?

 

A commission rate of 2.5-3% for each of  buyer and seller – adding to 5%-6% – has thus been the ”norm” and while there is no law dictating the commissions and it is all negotiable; and as hated this commission structure is by many, the real estate commission has survived the onslaught of many discounts or even technology based brokerages and quite surprisingly and to the dismay of many, in this world of technology has stayed at or above 5% in most markets.
The correct answer is to use real estate agents and lower the commission rates by “competition” between the agents, thereby realizing a “true market rate”. Imagine a buyer having to hire a real estate agent – the most common way people do it is by word of mouth, they do not have the opportunity to bid that job in the open market, nor the time and energy to bid the job to at least 100+ agents to attract bids for the most qualified agent – so the rate they get is not a true market rate.

A “true market rate” can only be determined when each job is bid by many qualified and interested agents who are reached out to for each job representing a significant portion of available agents in the market – no individual can do that themselves, so a software engine to do that bidding for them is needed!

Another key is to keep it fair to the agents – after all without the support of agents the entire real estate industry may not work well. Our goal of reducing the commissions to a “true market rate” should not result in reduced agents pay-rates or at least not a significant agent pay-rate reduction or put any agents out of business either at the detriment of the industry in general. This can be achieved in at least 2 ways

  1. Principals to make a somewhat stronger commitment (contractual or better moral/written agreements) to an agent to minimize the chances of a fall-through – more guarantee of business and more readiness of buyers and sellers minimizes wastage and contingency related commission increase.
  2. Principals to get lower commission rate proportional to the services they desire. It is to be recognized that some principals are extremely savvy and need agents time lesser than the others. In such a case they can save on agents time and thereby on the commission as well – in a seller’s case by a lower listing commission and in buyer’s case by bigger commission refund – proportional to a number of efforts involved. A bidding engine proportional to the services expected may be needed.

 

Agentsdeal.com,  a subsidiary operation of Agentsdeal Inc., a licensed CA real estate broker, is a patent-pending business model to solve technologically through a “service tier” based auction the above problems effectively and summarily and create a much needed breakthrough in real estate industry to lower commission to a true market rate and yet not hurt agents’ pay-rates significantly.

 

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