A Troubling – And Costly – Trend

Has anyone else noticed a nasty little trend emerging in their markets recently?  I have not had much experience in different types of markets – only licensed since 2004 – but one thing has been bugging me.  In the New River Valley, in 2004 – 2006, we had a really hot market and properties were moving … in 2007 it stabilized a bit, and 2008 has seen the same except in some areas.  But one thing has continued to move, and in the wrong direction.

Commissions paid.

What gives?  I’ve been feeling it in my gut for a while, and my year-end totals bear it out – year over year, the total brokerage fee I’ve received has gone down.  Last year was my best year ever in real estate, and the brokerage fee received was the lowest.  2.2%.  GULP.  I did a random sampling of twenty homes currently listed in our MLS this morning and found that of those twenty, 14 were offering 2.5% to the buyer’s agent and 6 were offering 3%.  Compare that to 2004, when, of twenty homes sampled, 12 were offering 3% to the buyer’s agent, 7 were offering 2.5%, and one was offering 2%.  I bet if we sampled every brokerage in the NRVMLS we’d find a similar trend as what I’m reporting here, and I’m wondering what people are seeing in their own markets.

The logic here seems skewed.  In a hot market, it seems sellers would be negotiating lower rates because – in part – properties would sell faster on average, and in slower markets the fees paid might be higher.
Anytime a commission is cut in order to win a listing, I as a buyer’s agent have my income reduced when I had nothing to do with the cut.  Yes – I can have a buyer sign an Exclusive Right to Represent – but I don’t offer that and so any commission that’s cut affects my bottom line.

Any thoughts on what we’re seeing?  It’s a disappointing trend, because there are many markets in Virginia where property values are falling … if others are seeing this as well, in falling markets, then some of these agents have to be gasping for air.  Are we just not defending our value to clients?  Are more and more vendors and referral companies holding their hands out (yes and yes, IMO).  Your thoughts?  What are you seeing in your market?

[Blogmaster’s note: While we encourage a free exchange of views, just a reminder to readers that commissions are set by brokers and fully negotiable.]

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4 Responses to A Troubling – And Costly – Trend

  1. Jim Duncan says:

    Jeremy –

    I feel your pain, but think that not working with a Buyer-Broker agreement is a choice with ramifications like the one above. Why be dependent on what someone – for whom you don’t work – is offering?

    I know I sound like a broken record, but …

    Are more and more vendors and referral companies holding their hands out

    And nine times out of ten, buyers are astounded at how much referral companies get for doing what frequently amounts to nothing.

  2. Tony Arko says:

    Jeremy,

    The fact of the matter is that the falling prices lead to falling commission rates because the sellers have less equity/no equity/negative equity. They don’t have any money to give for the extra effort that the Realtors® have to put into the sales process. It is almost purely market driven. And in my opinion the number would be less if the commissions were divorced.

  3. jay says:

    Tony is right. With less equity and many owners being on the fringe of being upside down–like me haha–they are trying to cut costs to sell their homes. I can see easily cutting the list side. In Northern Virginia anyway, most “listing agents” are nothing more than data entry agents. I”ve been meaning to blog about this for some time….When I do tackle it head on it is going to upset a lot of people I’m sure. The great majority of Arlington real estate listed have unbelievably mediocre or ugly photos that blurry, dark and small and almost no effort to get extra exposure for the home aside from a pathetic newspaper ad.

  4. Julie Emery says:

    Jeremy,

    It’s your business! You decide what you’re worth. My commission has not declined. I use a buyer broker agreement and I get paid the fee stated in that agreement.

    I have reduced my fees, but only when I choose and only when I consider it a true hardship situation. (Seller saying they’re not netting as much as they would have three years ago is not a hardship!)

    But you do have to believe you’re worth what you charge and you have to be able to compelling make that point to your clients.

    All that said, I think the compensation system in general is broken. At the very least, seller should not be paying compensation to buyer’s agent. But that’s another topic!

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