There often comes a time when a business model outlives it's usefulness and it's possible that the commission system in real estate definitely falls in that category. Now, this statement might surprise you coming from a real estate agent, but I see two things wrong with the commission system: 1) It penalizes both the consumer and the Real Estate practitioner and 2) Being paid on commission is totally incompatible with providing fiduciary-level services.

The commission system works on risk versus reward. In real estate, the agent takes all the risk and therefore receives a large reward if successful. In fact, that large reward does not just compensate the agent for that transaction, it has to compensate them for all the transactions that don't happen.

For instance, my team can spend months with buyers and if they don't buy, we're not paid. And even in a seller's market, due to pricing or terms, homes sometimes don't sell. Under the commission system, we're not paid for our marketing, advertising, expertise, and time. So, we need to get paid very well for the transactions that do go to closing, so we can make up for those that don't.

Many homesellers I talk with feel it's not fair for them to subsidize transactions that don't close. I agree, it's not fair; with housing prices rising so fast, a 5, 6, or 7% commission can often amount to more than the equity in their home! Unfortunately, the agent doesn't get rich either; the average Realtor nationwide earns $38,000 per year.

The other problem is that the commission system pays the Realtor only if they put “the deal” together. Unfortunately, that “deal” may not be in the client's best interest. It encourages all but the most ethical agents to get a price that will get the home sold fast, not necessarily for the highest price. If the agent is representing the buyer, they're supposed to get the lowest price they can, yet they're paid as a percentage of the home's price.

The commission system encourages the potential home seller to “go it alone” because many feel that there's no way for them to get the professional assistance they need for a reasonable cost.

This perception prevents homeowners from hiring Realtors for other services as well as selling their homes. I am often asked to do a market analysis and when I get there, I find a home that's been overbuilt for the neighborhood. In talking with the seller, I find out that before they added on, they never consulted a Realtor who could have advised them what additions their neighborhood could support as well as what remodels would get them the most when they sell. This situation is unfortunate since had they hired a Realtor for an hour or two of counsel, they could have saved themselves big bucks when the time came to sell.

I disagree with many of my colleagues who think that the homeowner doesn't want professional service. I speak with many home sellers who'd love to get professional help, especially in an ever-changing real estate market that cries for the expertise of someone who works in it day-to-day, if they could get that service for a reasonable cost. Unfortunately, up until now the only choices available were to pay a full commission, or go it totally alone against the odds, or try one of these discount brokers that have been popping up only to find out, (when their house doesn't sell), that they got discount service!

There is a solution - fee-based compensation. I've developed a Fee-for-service program for sellers which allows them to choose (and pay for) just those professional services they want and need.

Because I'm not paid on contingency, I can charge a reasonable price for my services and the seller can pick and choose those services they need at the time.

Published: June 8, 2000

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Mollie W. Wasserman is a pioneer in the development of Real Estate Consulting. She is the founder of the Accredited Consultant in Real Estate (ACRE®) Designation Course and Coaching Program, and author of the book Ripping the Roof Off Real Estate - How a Multi-Billion Dollar Industry Came to Have an Identity Crisis. Mollie is a real estate broker, ABR, e-PRO 500 (Select 50), iSucceed Mentor as well as one of only 200 CyberstarsTM. For more information about the ACRE® program, visit TheConsultingTimes.com, the premier journal of Real Estate Consulting or see the latest videos on Real Estate Consulting at ACREonYouTube.com.