How Real Estate Commission Models are Evolving

For years, real estate agents have been earning 6% commission on sales and purchases; however, there are a number of experts who believe that the commission structure will change for real estate agents. According to many experts, the advances in technology are creating and smarter consumer. With so many online programs that allow home buyers and sellers to conduct a great deal of the footwork without ever leaving their home, it reduces the operational need of a real estate agent. In the past, real estate agents had access to exclusive listings — making them a vital part of the home selling and home buying process.

With home owners and home buyers have access to virtual programs that will even allow them to take tours of certain properties, the relevance of real estate agents has been diminished to a certain extent. This does not mean that real estate agents have become obsolete. In fact, they remain a valuable asset in the overall scope of the buying and selling process; however, their role is evolving in a manner that will likely see the manner and amount that they are paid change in the future. There is no definite determination of when this change will take place, but it will likely take place over years, not months.

An Increasingly Competitive Market

There are many experts that believe the competitiveness in the market will drive real estate agents to offer discounts to their customers as a means of remaining competitive. What should be understood in this model of promotional and negotiable discounts, is that the reduction in the requested commission of the agent should not be viewed as being indicative of diminished capacity. In other words, just because an agent is not asking for the complete six points up front does not mean that they are not competent and highly proficient at what they do. In fact, it is likely an indicator of the reality that they understand the economic environment and the market they are operating in.

It is likely that real estate agents will witness somewhat of a rolling commission model that is reflective of the type of services that are offered. When you examine the range of operational and administrative work that an agent can carry out of the course of working with any given client, it can vary tremendously. There are clients that will expect their agent to hold their hand through the entire process — consuming a tremendous amount of time in the process. Conversely, there are other clients who will make a decision the first day, complete all of the necessary paperwork without the need for assistance — all while having their financing already in place. Currently, there is no universal scale to differentiate how an agent would charge clients in such a difference in the use of their time.

However, in the future, more educated consumers will become aware of these differences, and their autonomous client will not be willing to pay the same amount as the highly demanding client. It is likely that agents who have an establish cost scale that they can provide their customers will meet less resistance as home buyers and home sellers look for the most advantageous situation. Agents can expect easy six-point lay-down deals to diminish in number moving forward. While many agents are ready to embrace the idea of a new commission model, those who are more inclined to adapt with the needs and demands of the market are the ones who will experience the most long-term success.

Fighting Against the Momentum of Change

Some experts believe that there will be real estate agents that will continue to push the idea that discounted commission points on real estate deals is indicative of a discount in knowledge and capacity, but there is no evidence to support this mindset, and it is not likely that the educated consumer will continue to buy into this mindset. Actually, there is no shortage of agents that are being full commission that lack both, knowledge and administrative capacity. The evolution of the commission structure will force agents to provide a product and service that is exceptional in a comparative nature.

What consumers will actually experience during this evolution is an increase the opportunities to experience exceptional service at reduced rates.

New Broker Business Models

Over the last several years, a number of new brokers have emerged using new commission models to attract more customers. With these new models, customers would pay points or percentages based on the services that are provided to them. While some experts in the industry anticipated a huge push-back from other brokers and agents in the industry, it has not materialized.

Because geography has an impact on real estate markets, it is possible that some areas may be more resistant to alternative business models; however, it is more likely that consumer demand to force the hand of the market in general. It is all but impossible to change the mindset of the educated consumer. Not only are consumers looking for agents that can help them find the best deals or someone to help them move their property in the most expeditious time frame, but they are also demanding an exceptional experience. These consumers are demanding that this experience be commensurate with the money they are being charged to close the deal.

It is no longer simply about showing the home, but interaction, transparent communication and more. The agents that are capable of delivering the complete experience will be in the best position to collect the complete commission.

Agents should not view this as an instance of diminishing returns on their efforts, but instead, they should see this as an opportunity to become creative in the manner in which they deliver their products and services to their customers. This is an opportunity for them to set themselves apart from their competitors. With the mobile app market wide open, this is a change for agents to develop mobile app technology that create the capacity for them to effectively engage their clientele in a highly exclusive manner — developing and maintaining a competitive edge.