Homeowners Can Be Fooled

“Homeowners Can Be Fooled”
Says S.F. Chronicle Columnist

Arthur M. Louis, author of the San Francisco Chronicle’s “Moneybag” Q&A in its Business Section, has run some wonderfully provocative commentary lately about real estate commissions. He sure is no fan of the traditional 6% commission!

In columns printed March 3, March 18 and April 1, 2007, one agent writes to complain that Realtors aren’t compensated enough, given that its costs so much to market a house. Another writes that he considers its offensive that Louis “completely underestimates the level of expertise required to be a good Realtor.” And lastly, an unnamed agent claims that his self-interest in earning the highest possible commission would require him to steer clients away from otherwise desirable houses if it offered a lower commission. Louis’s response to this last complainer summarizes them all: “Are you trying to convince me that all those dreadful stereotypes of real estate agents are based on fact?”

As a full service Realtor charging untraditional commissions for over 20 years, I am in full alignment with Louis’s assessments. The problem that Louis points out, and has been documented in several research studies, is that the 6% commission is designed to compensate an agent for the all the time and money spent he/she spends in activities other than the actual job of helping a person buy or sell. Activities like farming, brand advertising, referral fees, and image marketing with fancy offices and luxury cars. Does a nationally airing TV commercial of a generic agent standing in front of a generic house mean that “Joe” seller in Berkeley will get the highest possible price for his house? Why should a seller pay 6% just to support a relo service that requires the buyer’s agent to pay 30% of her commission as a referral fee?

Among agents, it is considered heresy to point out that for the work and expertise we actually utilize to sell a house, or help a buyer purchase one, we are OVERPAID. This dovetails with what Louis says: “many full-commissions real estate agents seem to assume that the world owes them a living.” And clearly, despite many new business models to emerge because of the Internet, “Homeowners can be fooled–witness the fact that many of them still pay 6% commissions.”

Louis offers his own “modest proposal”: “slash the standard commission to 1% and let 5/6 of the agents find other work. The remaining agents will be adequately compensated and home sellers will get a better deal.” No objection here.