Should Realtors and other real estate agents be just paid hourly, or should we stick with the 3% commission?
HousingWire readers floated the notion in the comment boards of a recent article.
In that piece, the following claim is made: Surefield is changing up the way commissions are paid, using their 3-D virtual technology (check out the epic comments at the bottom of the Surefield article).
Redfin likewise has altered the traditional compensation model.
Some posts on other forums suggest paying Realtors by the hour.
Look, 3% seems like a lot of money given that median home prices are north of $230,000. Showing a few properties, sitting through the signing – does that really deserve that kind of commission?
And with online listings services growing so much, most of the work is done by the house hunter long before they hire that blazer-clad thousand dollar smile.
As one of our regular commenters noted on HousingWire:
Six percent commission has always been too high, and especially in these challenging times. By the hour would be better. Almost two decades ago, my husband and I contacted a realtor, decided to look at four houses, and settled on the third. She picked us up and it took all of three hours, or less. After that another three or four hours preparing for settlement, attending closing, etc. If commissions weren't so high there wouldn't be so many FSBO postings.
Yeah, I know right?
I get that dry cleaning for those gold blazers and all that hair spray and those scarves cost a lot, but come on.
So what? $25 an hour plus gas seems fair, right?
I mean, nurses make $25 an hour and they have to deal with sick people.
So why so greedy, Realtors?
OK, ask a lot of buyers if that 3% commission seems fair and if they’d pay their Realtor by the hour, and that’s typical of the response you’d get.
But the fact is, I can say something that real estate agents can’t say aloud: Buyers can be stupid.
They don’t see the hours of market research that goes into every transaction. They don’t see the hours whittling down lists of potential properties to a manageable number so that clients don’t have to spend every hour of their weekend looking at properties.
They don’t see the time spent marketing properties that are for sale.
They don’t see how many buyers and sellers end up changing Realtors for no good reason, or who end up not buying or selling at all.
That’s not a little thing – if an agent spends 30 hours on a client who ends up not buying, they have to make up that lost income, so it’s built into that commission for sales that do get closed.
But consider the world of hurt opened up if Realtors and agents started charging by the hour. They’d have a great incentive to drag their heels, to be scattershot in looking at properties, and to drag out closings.
Ever wonder why attorneys just love how protracted legal proceedings are?
Worse, they’d start acting like lawyers who bill you 30 minutes every time you pick up the phone and call them for two minutes to ask them how it’s coming.
The hourly rate you’d have to pay real estate agents to compensate them properly would choke you. And guess, what, you’d have to pay them that hourly even if they are terrible at their job and don’t find you your dream home.
There’s no law that says agents have to be compensated with 3% commission. It’s up to them and their brokerage. There are a few companies out there like Redfin and Surefield breaking the mold.
And no one says you have to use a Realtor or real estate agent. But as with most any other high-information professional transaction, you’d be a fool not to have representation on your side of the table.
That 3% is a painless payment. It buys you market information, advice and experience that you can’t get shopping listings in your pajamas on Zillow or Realtor.com.
You may be a self-taught expert in your mind, but in reality even experienced lawyers hire other lawyers to represent them in court.
This is not a love letter to Realtors and real estate agents, just recognition of the value they bring.
That’s not to say they should be complacent.
Technology is changing things. Zillow, Trulia, Redfin, Surefield and so on. Realtors need to evolve if they’re going to stay relevant, because the showings – which are already just a small part of what they do – will increasingly be handled virtually, and market intelligence is being democratized.
Otherwise if they don't evolve, the prediction that they will be unnecessary by 2025 will come true.