Housing.com News, Analysis & Opinion: Buying And Selling: The Six Percent Nation

“You can find out more on the Internet about an eBay Beanie Baby than you can about a $1 million house,” said Glenn Kelman, chief executive of Redfin, a licensed broker in Washington State and California....the typical 6 percent commission, paid out of the seller’s proceeds and split between the seller’s and buyer’s agents, is under attack because, as economists note, it does not serve consumers well.

Some economists wonder why agents fight so hard to maintain this pricing system when it is making so few of them rich. In every housing boom, the number of new agents entering the market tracks the climb in home prices. As a result, the average agent sells far fewer homes and makes less money. On average, agents earn $49,300 a year, according to the National Association of Realtors, and that is before paying for their own health insurance and retirement benefits.

The sales/commission model is an outdated, archaic system that relies on the pressure to compete and close deals to make money, rather than focus on providing the customer to the best service. It's what drives brokers and agents to unscrupulous tactics, and pushes homebuyers and sellers into the welcoming arms of Internet brokers.

The article quotes "Freaknomics" co-author Steven Leavitt, who has tussled with the NAR and its bizarre, cost-ineffective pyramid scheme a time or two. Recently his partner Stephen Dubner opined on the oversaturation of realtors in specific markets. That's another thing that doesn't make sense--realtors manifest in huge droves in hot markets, without realizing that, just like home supply and inventory, too much of a good thing reduces price and value for all.

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Today's New York Times has a fantastic overview of the changing face of the real estate transaction, as homebuyers are using Web-based brokers to challenge the realtor establishment (Login required): “You can find out more on the Internet about an eBay Beanie Baby than you can about a $1 million house,” said Glenn Kelman, chief executive of Redfin, a licensed broker in Washington State and California....the typical 6 percent commission, paid out of the seller’s proceeds and split between the seller’s and buyer’s agents, is under attack because, as economists note, it does not serve consumers well. Economists who have studied the current system say that it also does little for most agents — except for a few stars, whose impressive earnings give hope to the large majority of less-successful agents and thus encourage them to protect the status quo. Rivals on the Internet say they do this by refusing to cooperate with buyers using Web-based brokers and by denying M.L.S. information to some online firms.... Some economists wonder why agents fight so hard to maintain this pricing system when it is making so few of them rich. In every housing boom, the number of new agents entering the market tracks the climb in home prices. As a result, the average agent sells far fewer homes and makes less money. On average, agents earn $49,300 a year, according to the National Association of Realtors, and that is before paying for their own health insurance and retirement benefits. The sales/commission model is an outdated, archaic system that relies on the pressure to compete and close deals to make money, rather than focus on providing the customer to the best service. It's what drives brokers and agents to unscrupulous tactics, and pushes homebuyers and sellers into the welcoming arms of Internet brokers. The article quotes "Freaknomics" co-author Steven Leavitt, who has tussled with the NAR and its bizarre, cost-ineffective pyramid scheme a time or two. Recently his partner Stephen Dubner opined on the oversaturation of realtors in specific markets. That's another thing that doesn't make sense--realtors manifest in huge droves in hot markets, without realizing that, just like home supply and inventory, too much of a good thing reduces price and value for all.