Realtor Fees: What Is Causing the Death of the 6% Commission?

Real estate is changing. That is a fact. Technology, public availability of MLS data, and consumer knowledge have all come together to change how property is bought and sold in the United States. With these changes, we are witnessing the perfect storm that is bringing to pass the death of the 6% sales commission.

6% Realtor Fees: The Old, Traditional Model

For decades, realtors set their fees at 6% of a home’s selling price. This 6% was split between the selling agent and the buying agent, usually at 3% each. Although home sellers often grumbled at the steep price, they recognized the value added by the real estate agent because these agents had a secret weapon known as the Multiple Listing Service (MLS).

The Multiple Listing Service (MLS) is the main database for brokers to list and share information about properties for sale. If you have a home for sale, your broker lists the home on the MLS so brokers trying to find homes for prospective home buyers can see yours and show it to them.

The MLS was exclusive. If you were selling, you couldn’t get on the database without an agent. If you were buying, you wouldn’t be shown homes unless they were listed on the database. This meant real estate agents could charge what they wanted, and they decided that 6% was the right number.

Although agents did much more than list homes on the MLS, and continue to do so today, their unique selling proposition revolved entirely around the MLS. Without it, you were unlikely to sell your home. However, in 2009, everything began to change.

The Perfect Storm

Due to rulings about MLS availability to Internet-only brokers, new laws were created that have given online sites the ability to show MLS data. Now, though it takes a broker to list a home on the MLS, it no longer takes a broker to view active MLS listings.

During this same period of time, the Internet was growing in leaps and bounds. Sites such as Zillow, Trulia, and popped up, making it easier and easier for anyone with a computer to see what was for sale. These sites began including information about neighborhoods, school systems, drive time to work, and even walkability rates. Prior to the Internet, these facts and figures were solely in the hands of the agents.

Due to sites armed with MLS information and more, consumers began taking on many of the roles that used to be played exclusively by an agent. According to a National Association of Realtors 2015 trends report, 90% of all buyers searched for homes online at some point during their home search and 100% went online to research a specific property. No longer were buyers and sellers relying on their agent to do the work that used to be exclusively in the agent’s control.

Trying To Fill The Gap

As consumers began doing more of the work that used to be exclusively the job of a broker, they began looking more critically at the standard 6% commission. What was the agent doing for the money that they couldn’t do themselves? These questions led to many different real estate models:

  • For Sale By Owner (FSBO) – Though some sellers have always used FSBO methods, there was a major increase in the number of sellers who chose to go it alone. The problem is that 88% of those that start selling on their own eventually turn to an agent because they cannot sell their home.
  • Discount Brokers – Discount Brokers jumped into the ring offering a flat-fee for their services. However, not only was their fee reduced, but so was their interaction and involvement with the selling process. Limited services meant the owner was doing a lot of work by themselves, running into the same problems as those going the FSBO route.
  • Flat Fee MLS – This model is like a discount broker but with even less service. The only thing a seller gets for their money is the inclusion in the MLS. Other than that, a seller is on their own, running into the same terrible odds as a FSBO.

The problem with each of these models is a misunderstanding about what brokers do. Yes, the MLS was a big part of the old model, but it was not the primary reason a broker was needed. That realization among consumers has led to the newest and best model for home buyers and sellers known as the Flat Fee, Full Service model.

Flat Fee, Full Service To Eliminate the 6% Commission

Why do FSBO sellers fail at the rate of 88%? It can’t be the inability to list on the MLS because FSBO sellers can find ways to include their property on the MLS and have it show up in online sites. They also have access to some of the best marketing practices used by real estate brokers. So, what is the problem? Having access to these tools is not the same as having a broker who understands how to use them most effectively and has the time to dedicate to the process. Plus, marketing is only part of the home selling process. A good broker also knows how to get a seller and buyer through the negotiations and to the closing table, as well as how to create a solidly legal contract. All of these ingredients are needed to bring a property to closing.

This knowledge is very valuable to buyers and sellers, but a few agents are beginning to realize that a 6% commission is too much to charge for their services. Yes, brokers add value, but what they do for the consumer has been simplified due to technology. That is why the Flat Fee, Full Service model, offered by companies such as Recadia, is making big waves in the real estate world.

For a flat fee, the seller’s agent will do everything a broker used to do including the MLS listing, marketing, meeting with buyers and buyer’s agents, negotiating the contract, writing the contract, and getting the process through to closing. They provide the seller with a their full range of knowledge, but do so for a fee that makes sense for the work that they do. When creating the contract with the home seller, the agent will also suggest that the buyer’s agent is offered a flat fee for their services. Just as with the traditional 6% commission, these fees are rolled into the list price of the home, but since the fees are lower,both buyers and sellers win.

Recadia’s brokers have the right kind of experience to sell your home and provide you with everything you would expect from a broker…except the ridiculously high fee. Call Recadia today to learn how a full service, flat fee broker can help both buyers and sellers save thousands.

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