Commissions may be going up, but are agents making less?

This article was last updated Sept. 18, 2023.

Over the past few years, home prices have gone up significantly. That should mean higher commissions.

At the same time, however, the number of Realtors has risen and there are fewer houses on the market. With each agent selling fewer houses on average, some agents appear to be charging more.

That’s because, according to RealTrends, real estate commissions have been creeping up over the past three years from an all-time low of 4.94 percent in 2020 to 5.32 percent in 2022, which is the highest it’s been since 2013.

I know my logic about why commissions are up doesn’t make sense but I can’t think of any other explanation when there are more agents than ever chasing fewer sales.

The agents who can charge more and make more from each transaction might survive for a few more years. Selling expensive houses and charging more seems like a winning combination.

Now, however, as major brokerage brands settle the bombshell commission lawsuits, agents will be forced to discuss and justify their commissions more than ever before. Are they ready?

Homeowners love to get into the commission conversation

Homeowners like to tell agents what the “going rate” is, even though most real estate companies do not publish a price list. The “going rate” has been the same for the last 20 years and is higher than 4.94 percent or 5.32 percent. The going rate is kept alive by companies that advertise that they charge less than the going rate.

People who are looking for the lowest rates are not always the best clients. At least not for agents who offer service and who have experience and more than one client.

There is no evidence that experienced agents charge more than new agents, and, even if they do, why would commissions go up during the last few years while there has been an influx of new agents?

Real estate commissions are negotiable. Agents should always be open to negotiation, which is not the same as being open to accepting less. Agents who are not willing to negotiate are missing out on the opportunity to demonstrate their negotiating skills.

Unfortunately, even agents who have excellent negotiation skills end up with clients who are not at all good at negotiating and those clients mess things up for themselves and everyone else who is involved in the transaction.

Consumers get pretty hung up on percentages and we rarely discuss dollar amounts. Flat fees do not have to be smaller than a fee based on a percentage of the sale. When charging a percentage of the sale price, consider percentages that end in .25, or .50, or any other fraction of a percentage.

Some in the industry look down on discount brokerages. What is a discount brokerage? No one really knows. If an agent charges less to any client, isn’t that a discount?

I think the reason for charging a percentage of the sale price of a home is that a single-digit percentage sounds like less than, say, $30,000 dollars.

If consumers believe commissions are lower if they are a flat fee rather than a percentage, I can see where agents could make a lot of money by charging flat fees.

Upfront payment would be a big improvement

It would be nice to be paid a third of the commission that will be owed to start, just like other contractors. Sometimes it can take years for a buyer to find the right property and it can take years to sell a home that the owners insist on overpricing.

Some transactions require enormous amounts of work, especially lower-priced houses with lower commissions. Higher-priced real estate is the most profitable.

Clients can manufacture all sorts of emergencies that disrupt the lives of real estate agents. After all, agents work for free until the sale closes.

Parents miss T-ball games so they can write emergency lowball offers. Mothers work with clients instead of enjoying brunch with family on Mother’s Day.

Real estate agents are not like plumbers. There is no extra fee for handling emergencies on holidays or after hours. In fact, all hours are business hours.

It isn’t unusual for agents to get calls from clients or total strangers on Christmas or New Year’s Eve. There are people who need to see a property on Memorial Day or July 4th.

They wait and don’t give much notice and, if they already have an agent, that person is out of town for the holiday and unable to help.

For a few years, we were getting calls from buyers asking if we would give a large portion of our commissions to them. My answer has always been “No.” If people want to earn a commission, they should get a real estate license and start charging.

When I go to a store and make a purchase I don’t expect the sales clerk to share part of their wages with me.

All too often, people believe they will save money if they don’t pay a commission. Usually, they are wrong but if they are right it is because they worked with the wrong agent. It happens all the time.

Lately, it seems like every transaction I see is messed up, unusual, difficult and risky. Health insurance is outrageously expensive and so is medical care. All great reasons for asking to be paid more.