I came across a very interesting article by Bernice Ross in Inman News. Recently, there has been spirited debate among readers about the future of agent compensation. Ross points out that what few people are discussing is a pattern that has been consistent for more than 30 years that she has been in business.
Commission rates are primarily contingent upon whether an area is experiencing a buyer's or seller's market.
Ross points out that in a buyer's market, the "value" of an experienced agent who can close a difficult transaction increases dramatically. Despite the tremendous number of REO, short sale and foreclosure properties where commissions are usually 5% or less, commission rates in 2008 increased just as they have in previous buyer's markets.
While commission rates increase as the market worsens, the total commission dollars declines, the reverse is typically the case in a heated seller's market.
Ross had an in depth study of statistical data from Keller Williams Realty, Realogy, and Real Trends from which she drew her conclusions. One interesting observation is that the median amount of commission for buyer's agents in 2008 was 32% higher than it was for listing agents. Which seems to reflect the trend for listing agents who are given a discounted commission rate on REOs and short sales to continue to offer a full co-op to buyer's agents.
As a Keller Williams agent, I was quite pleased to see that in 2008, KW had a 2% increase in per-agent productivity, while the National Association of Realtors reported a 2.9% decrease.
Will commission rates go down when the market improves? Ross says that based upon past markets, the answer is probably "yes!" Will agents make more money per transaction when the market improves? If the past market trends predict the future, the answer to that question will be "yes!" as well.
Janna Rankin Scharf provides a superior level of real estate services to home buyers and sellers in Coeur d'Alene and Kootenai County, Idaho. Visit www.JannaScharf.com to search for homes in the Coeur d'Alene MLS for anywhere in spectacular North Idaho.
No matter how grand or modest your real estate dreams may be, you can turn to me in confidence. Give me a call today and let me know what I can do to be of service to you!
Janna Rankin Scharf, AB, GRI, CSP, CNS, CLHMS 208.651.9700 NorthIdahoJanna@gmail.com
Janna Rankin Scharf provides a superior level of real estate services to home buyers and sellers in Coeur d'Alene and Kootenai County, Idaho. Visit www.JannaScharf.com to search for homes in the Coeur d'Alene MLS for anywhere in spectacular North Idaho.
No matter how grand or modest your real estate dreams may be, you can turn to me in confidence. Give me a call today and let me know what I can do to be of service to you!
Janna Rankin Scharf AB, GRI, CSP, CNS, CLHMS 208.651.9700
I had not thought about the changes in commissions you described, btu I suppose it does make sense. As home values (and "sold" prices) go down, the commission percent may increase, but the commission amount goes down, because the sold price goes down. For instance, if the price of a home drops from $300,000 to $240,000 (20%), but the commission goes from 5% to 6%, we can do the math and see the difference.
$300,000 at 5% = $15,000
$240,000 at 6% = $14,400
Even though the commission goes up 1%, the drastic change in prices has caused the dollar amount to be reduced. Intersting observation.
Jim Swanson, www.homesbyjim.com
Janna,
That's an interesting study. I would say that the REO market is more responsible for the lower commission on the listing side in our area. Agents are well aware that the bank may try to renegotiate the commission on short sales and usually leave themselves an out by stating that any reduction will be split between the agents.
Brian, that's the same thing we are seeing here in orth Idaho.