Is 4% The Old 6%?

As someone who signs a lot of commission checks, I can say not much has changed in the last five years.  The check totals today are more or less the same as they were in 2018.  How is that even possible with all that has changed?   The answer is found in math. 

When home prices began to soar, consumers noticed how the old 6% listing fee no longer made any sense.  They complained LOUDLY!  So much so the Department of Justice (DOJ) actually looked into it for several years.  A dozen lawsuits and hundreds of thousands of complaints later, it appears the Real Estates industry’s “3rd rail” has been breached.    

What the recent DOJ decisions will mean to agents going forward is unknown.  But this is certain, the Buyer’s Agent commission debate hit the mainstream.   It is only a matter of time before the public sweeps 6% Listing fees into the historical dustbin.  I still see 6%, I see a lot more 5% and believe it or not, we are starting to see 4%.  (With a 2-2 or 1.5-2.5 split) Agents are often quick to complain this sucks, but does it? 

In truth, we’re experiencing an honest to God capitalistic market correction.  This how economics is supposed to work.  When a business fails to keep step with its customer base, they either must change to what the customer base wants or go away and die.  A significant percentage of home buyers and sellers are finding the 6% Listing fee dated and no longer applicable.   You can guess what will happen next.  But is it really that bad?

In 2018, the median price of a home in Atlanta was $250K.  With a 6% listing fee, the seller paid out $15K in commissions. The agents realize $7,500 each in commission.   In 2023, the median price of a home in Atlanta was $410K.  With a 6% listing fee, the seller would be out $24,600.   The agents would realize $12,300 each in commission.  Whoa!  That math doesn’t work. 

Look what happens to our 2023 priced home with a 4% Listing commission.  At 4%, the Listing fee would be $16,400.  Which is actually in line with the 2018 priced home with a 6% Listing fee.

In 2018, when an agent sold a median priced home ($250K) they received a 3% commission of $7,500.  In 2023 when an agent sold a median priced home ($410K) they received a 2% commission of $8,200.  Again, roughly the same amount of commission with a slight rise for cost of living. 

So far, the public seems pleased commission percentages are coming down.  They will consider a 4% Listing fee a huge win from the “olden days” of 6%. 

The only place this math doesn’t work is in the franchise sales system.  Broker overhead kills everything.  And don’t think for a minute the consumer is not aware of Broker overhead.  They get it—national branding costs them money.  For reasons unknown the real estate industry has always treated the consumer as some sort of dolt.  But, you know they aren’t!

Along with a reduction in commission percentages, consumers are open to accepting new real estate brands.   There is absolutely NO data pointing to younger generations having any loyalty to the 1970s style real estate brands.  Retro can be cool until it hits your pocketbook.

Franchise agents, you can do that math.  Make less money by squeezing in an unnecessary “commission split” or, move on to a different style of real estate.    A style of real estate that is flat-fee, NAR-free and BS free.

Commission percentages are coming down.  And most will agree, there really isn’t any way around it.  Given that, don’t be afraid of it.  Sell toward it.   The math is in your favor. 

     

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