Real Estate broker commissions?are going through a process of dramatic change. There was a time when brokers had great?control of their pricing models, and this presented the general public with a ?black box? view of what Realtors did to sell a home. Thanks to the proliferation of the Internet and sites such as Trulia and Zillow, real estate brokerage pricing models are under extreme pressure to change.
Realtors manage their inventory (homes for sale) using the multiple listing service. Before the Internet, the MLS published thick books of inventory;??what homes were for sale, what homes?had sold. Realtors would thumb through the office copy of this dictionary sized publication, and alert their buyers and sellers to changes in the marketplace accordingly. The general population had very little access to any of this information. This model allowed the real estate community very tight control of the inventory, and by virtue of that control, the commission pricing models as well.
Think about this ? 6% commission was a standard rate until about 2010 ? prior to that, the 6% model was the standard for several decades. Today, 5% is somewhat accepted as the standard, and there is pressure on that pricing to drop. In fact,?there are a great number of?brokers who are doing business at commission pricing at under 5%.
Why is that??The proliferation of the Internet and third party real estate sites such as Zillow and Trulia. These have forced the economics of the broker pricing models to change. Simply put, Realtors do not control the marketplace information ? Trulia, Zillow and the Internet do. Therefore,?commissions cannot be controlled and are?now becoming subject to competitive ?bake-offs?.
For example, if I was a broker?prior to the Internet and I took a listing at less than standard commission,?there?might be repercussions from other brokers. Agents representing qualified buyers?would be reluctant to show or market my listing, and the buyers had very little ability to know about?my listing?since they relied largely on their own brokers to access the?inventory.
Today, buyers use Zillow and Trulia to access the marketplace. (Many times, they know what is available before the brokers do!) These two sites?own the market share, with?realtor.com (the official site of the National Association of Realtors) a very distant third. Whatever commission a broker lists a property at, or as importantly, what they are willing to pay the selling (buying) agent, is largely irrelevant. The buyers will still have access to that property in the marketplace.
This allow sellers to?have greater flexibility in their negotiations on?commission. It also forces brokers to compete for listings via?aggressive commission pricing.
In fact, this model has really helped the discount brokers. Discount brokers, especially those that are offering set, tiered pricing models are finding that their business is exploding. These brokers are now flourishing as access to the marketplace has made their business models viable.
Another benefit of Trulia and Zillow is that the general population has access to?better information. Once a black box, selling or buying a home is a lot better understood by the market. Additionally, users have access to Realtors for questions in a largely anonymous, user friendly way.
Real estate broker commissions are under incredible scrutiny today. Once just accepted as standard, consumers want to know what the broker makes and why. Trulia and Zillow, both predominately used by buyers and sellers, have snatched control of the marketplace from the hands of the broker. This has left broker commissions subject to standard economics ? the competition for business will ultimately drive commissions down. The future for full service brokers is cloudy but those who?are willing?change with the market are most likely to survive.
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