When 60 Minutes aired their segment, "Chipping Away at Realtors' Six Percent," the agent population was understandably incensed because it failed to acknowledge what we agents already knew: that despite the huge increase in housing prices over the last ten years with the accompanying public perception that agents are making gobs of money, the truth is quite different.

In actuality, Realtors' median income was down 3.2 percent in 2006 compared to 2004, while their 2004 median income had dropped 5.6 percent from 2002.

In his analysis of REALTOR® commission, population and income, cited in a real estate competition report released by the U.S. Justice Department and Federal Trade Commission, Chang-Tai Hsieh, an associate professor of economics at University of California, Berkeley, wrote that the median-income drop for Realtors "is clearly driven by the fact that there has been excessive entry in the last two years. You would expect to see some exit in the near future, but as soon as housing prices pick up we're going to see more entry and then that's going to drive down (income)."

While there are some top-producing REALTORs who make a lot of money, "on average, REALTORs are not making much money," Hsieh said. Furthermore, "while typical agents may not make much money, he believes that the prices consumers pay for real estate services are extraordinary and that those services shouldn't be costing that much."

"What is particularly tragic about this industry is that not even the REALTORs benefit from this," he said. "A much smaller group of real estate professionals, who charge for hourly work performed, could create a more efficient marketplace" Hsieh said.

Hallelujah to Professor Hsieh who confirms what I have been saying for years: that the commission model in real estate is broken. Back in 2000 in an article for Realty Times entitled, "Is the Commission System Unfair?", I wrote that commissions have evolved into a truly lose-lose bargain. Because the consumer is essentially paying for risk mitigation, commissions are an extremely expensive way to pay for real estate services.

Professor Hsieh is absolutely correct; real estate services shouldn't be costing so much and they wouldn't if consumers were able to pay for the services themselves rather than what is essentially an insurance policy with services thrown in.

The other side of this lose-lose proposition is what is happening to the agent. Professor Hsieh is also correct that what is tragic is that REALTORS are not benefiting from being paid by commissions either. When I coach graduates of our online course, the Accredited Consultant in Real Estate (ACRE^TM), I always ask them to do the following exercise: Take their gross commission income last year and divide by 52 so they now have their average weekly income. Then divide that income by the total number of hours they estimate they work in a week. Not the hours they would like to work but what they actually work. The results are incredibly consistent: the sad truth is that with all that the requirements, training, liability, and continuing education, the average agent today earns less than minimum wage.

Yet, for the most part, the real estate industry refuses to start offering some responsible options that give the consumer real value for their real estate dollar yet pays the REALTOR fairly for the valuable contribution they make. Part of the problem is agents themselves -- we get addicted to a large check and don't think about the time it has to cover. For the most part, agents don't think in terms of hourly worth. When agents get a large commission check, they almost always forget how many unpaid hours (and transactions that fell apart) that check has to cover. The commission checks for the transactions that close in fact have to subsidize all the work done for transactions that don't, not to speak of all of the "free" services that agents are expected to provide.

No question that paying for the real estate services themselves, as well as the agent's time, will require a paradigm shift for the consumer: if they want to pay for the services, they are not going to also get the insurance policy. The consumer needs to understand that they can't expect an agent to continue to provide free market analyses and "tour guide" services. They need to understand that if they want to pay more reasonable real estate fees, they can't also expect to pay an agent contingent on getting their desired outcome. Services rendered need to be paid for and nothing in this world is free. If we want to get out of this lose-lose scenario, both the consumer and the real estate industry itself needs to accept this reality.

To continue to stick to a broken commission model is to see a future of continued decreasing compensation for hard-working agents while leaving the public priced out of vital services and representation. The public will continue to be at the mercy of hucksters who would have them believe that selling or buying a home is no more difficult than selling used clothes at a yard sale.

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^TM) designation (http://www.ACREcourse.com), and author of a new 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 Cyberstars^TM. You can read her blog at: http://www.TheConsultingTimes.com.

Published: June 22, 2007

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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.