Real Estate's Broken Business Model – Part IV
(Part IV of a four-part series ~ continued from yesterday)
The real estate profession relies upon a compensation system that is fatally-flawed.
Why are real estate fees based upon a percentage of the value of the property?
Does it really take 8X more effort for an agent to sell a $800,000 home than a $100,000 home?
Is it realistic that the commission on that $800,000 home may be $48,000 vs. $6,000 for the $100,000 home?
Fact is, it’s often more work selling a $100,000 home than a $800,000 home!
The problem is that, under a percentage-based fee system, agents only get paid at closing instead of getting paid for the effort they expend on each seller or buyer they work with.
There’s also a issue of the buyer’s agent sharing a commission paid by the seller.
Buyer agents are supposed to represent their buyers, but they are dependent upon the seller for their compensation.
Finally, there’s the issue of dual agency (aka “double-dipping” or “double-enders”).
Does it really make sense that a real estate agent will earn twice as much when they sell their own listing?
Not to mention the inherent conflict of interest while representing both buyer and seller.
No wonder attorneys love to sue real estate agents when something goes awry in a dual-agency transaction.
In a (more) perfect world:
- Buyers and sellers would each have their own respective agent.
- Buyers and sellers would each compensate their own agent.
- Dual agency would be prohibited.
Is it any wonder why real estate agents are not viewed as respected professionals?
Yeah, I know ~ lots of complaining and no solutions.
Stay tuned for an upcoming post on the future of the real estate business !
July 16th, 2009 Posted in Inside Real Estate
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By Rockford Area Realtors on Jul 16, 2009
Great post. Keep up the good work!