Rob Hahn has written an extremely thought provoking piece on the role that broker commissions play in the pricing of real estate. It isn’t what I originally thought when I read the title- I was expecting a “commission is just a markup” but it wasn’t about that at all. It did get me to wonder aloud, however, if there is a seller out there that would, in exchange for no commission, retain a broker and then just pay billable hours until the house sold.
I am in the field. Rob’s article is eye opening. If I were to charge $X per hour for my services, would the seller have the house sit out there speculating on a high price? Or would we skip months of messy rooms, denied showing requests, subjective speculation pricing and get serious? I think if they paid billable hours, the answer would be the latter.
Essentially, the commission I charge is categorized under the risk being proportional to the reward. Low risk, low reward. High risk, high reward. Which is why the broker fee line item in a transaction I broker is among the larger numbers. In forgoing the commission for billable hours, the seller essentially shares the risk. If the house sells fast, there is a huge savings. If it does not sell quickly, the seller could pay as much or more. Facing that reality, they would be far more likely to be proactive participants, keep the house clean, price realistically and accept all showings.
Less than motivated sellers often figure that they lose nothing if the broker fails to sell the home because commission is only paid at a closing (they actually do pay a hefty price in the form of a stale listing, but that is for another post). That explains overpriced listings, denied appointments and a host of other things that drive Realtors batty.
If the seller shared the risk and traded commission for billable hours, overhead would plunge- less time on market, fewer hours devoted to pushing overpriced listings, far smaller marketing budgets, and a more streamlined process. The only caveat here is that you couldn’t go half and half with some listings on commission and others not, because you’d have the worst of both worlds- the commissioned listings would not sell and the hourly deals would have their profit eaten by the overhead of the stale stuff.
Will sellers share the risk? Or, more likely, as much as they bristle at the line item of the commission, do they know it really is the price of they pay to have brokers roll the dice the way we do now? I believe in the power of market forces. An organically better idea would spread like wildfire if it truly had merit. Billable hours, while a great theory, will never work so long as the vast majority of sellers would see trading the commission for higher personal accountability as out of their comfort level.