Active Rain February 16, 2009

The Inman Debate on Agent Compensation

There continues to be a series of article at Inman News about the compensation of real estate agents. The latest article, entitled “6 Percent is Dead,” the owner of a web-based company chimes in with his view. A version of my response is below:

I have not read every article in this series, but the two I have read were written by an agent whose blog paints a picture of frustration who is muses for a salary; and a web-based firm which doesn’t do traditional brokerage in a market where local listing agents have to accompany every single showing (no easy feat).

Inman may get alot of chatter and mileage from these articles, but in light of the failure of Foxtons and Iggy’s House, Real Estate never had the massive Internet-fueled sea change we saw in travel, insurance and stock brokerage, which revolutionized entire industries almost overnight.

I’m also a little tired of people poo-pooing the role agents play in the home buying process. The “I saw it first on the ‘Net so I don’t need a broker” game is tired, inaccurate and obtuse. You saw it on the net first because you were on a broker’s website and they figured out how to make it play into their model. The rest of the process is so clunky, complicated and drawn out that the best brokers who do the most business drive the traffic while working at companies where they can earn the most for their expertise.

In the meantime, non-traditional brokerage remains virtually the same percentage of the market as FSBO was before the advent of the Internet. My own observation is that commissions have risen in my marketplace since 2005, when there was a legitimate question as to how much work it was to sell a listing.

Having an interest in two companies, one “traditional” and the other “non-traditional,” I can see it better than most. Brokerage is needed because of the landscape, the best brokers will work where they can earn the most, and that is why the talk of changing business models has only yielded failed companies and more talk.

Somewhere between the anti-trust cabal of “standardized” commissions and the wildly inaccurate predictions that agents are unneeded because people will add homes to their Internet shopping carts, the market has already spoken. It remains a percentage commission based system. Water falls to it’s own level and cream rises to the top. It is no mistake. Examples to the contrary are anecdotal and less and less common.

Agents are utterly crucial in the transaction of real estate. The best agents who do the most business will work where they can earn the most. Moreover, the agents who are surviving (and some are actually thriving) in the current depressed market are forces to be reckoned with.  Rumors of our demise are premature.