Many in the real estate world believe that in time we will see the past revisit us. I don't believe so. I think that we are in the midst of a fundamental change in the industry and how we are paid going forward will not be the same as it has always been.
First off, a brief framework of commissions and untimately our income. At an average selling price of $150,000, a 3% commission (assuming one side only) comes to $4500. After the split with your broker, assuming a 80-20 split, you net $3600. If you sell one house a month, that is $42,200 a year income. After paying expenses of say $5000, you are now down to 37,200. Now pay income and self employment taxes and your pay is reduced to about $30k.
But in this scenerio, there are some basic assumptions. First is that your average selling price is $150,000, that you only get one side, that you get a 3% commission on all sales, and your split is 80-20. You get the drift. What if you don't sale a home each month? You probably would think that spending more on promotion would change the numbers- that is what you will hear from others. It may or may not be successful, but it will increase your expenses.
So can we depend upon old models of commission going forward. I think not. In our MLS there are currently many properties with less than 3% commission to the selling agent. That does not support the example above. Nor is there any indication that the current market will change dramatically over the next few years. I know, that is against the grain of what most want to believe. But with millions of baby boomers getting to retirement age, we may see a staggering number of homes hit the market. With government pushing affordable housing, and large homes in the suburbs not qualifying, we should see pressure on these very same boomers to reduce commissions to us. Technology will have a part to play in this saga as well. Contrary to what the large franchises are promoting, I see a reduction in service as sellers take on more of the marketing of their homes. And buyers will have more opportunities to receive part of their agents commissions-if they have an agent at all.
The only good thing I see out of this downturn is that the push for banks to be involved in real estate has been put on hold. Most are concerned with getting out of real estate for the moment.
Pay for service is coming. Each of us will devise what amounts to be a buffett service menu. Since we still don't control our MLS- that is our product, and we are collectively giving it away to sites like Trulia, it is we that must change or go by the way of the dinosaur
