The latest issue of ‘The Economist’ has an interesting article about the value of real estate professionals. The piece questions why estate agents in Brittain charge 2%-3% of the sales price as commission and typically do 40 – 50 deals a year while American agents charge double that and average 7 transactions a year. Here, please read it for yourself.
It does make you wonder.
And there is some pretty good speculation on the part of the author, too . . . ok: maybe (s)he gets a little carried away near the end of the piece but I think for the most part the points are well made.
Here’s what I remember:
I was running a Century 21 office in Georgia in the early 80’s with an average sale price at about $100,000. Commission splits to agents were reasonable: in the 60%-65% range for solid producers. The Franchisor announced their new premiere award, the Centurion. At that time, an agent needed to generate $150,000 in Gross Commission Income to the office or close 50 sides of business to win. Because our price range was lower and our commissions less, my agents found it hard to conceive of generating $150,000 in commissions. But they could imagine doing 50 deals a year . . . and they did.
I remember being on the Convention shuttle that year with my first award winning agent. We were comparing notes with another award winner from the San Francisco area. Each had won the same award, the Centurion. My agent was sharing that she’d done 55 closed sides and asked what the other agent did. The answer: 12.
It would be hard to tell which agent delivered the best service to her client, but I’ll tell you this: as a buyer or seller I’ll take the 50 deal a year person every day. That’s a person who fights and claws her way through a transaction, who learns how to make things work and brings all of that street smarts to the table. That’s a high value addition to the transaction, worth every penny whether Set Fee or Percentage Based.
While I do have a problem with high percentage based commissions, I think a bigger issue right now is poor productivity. How can we hold ourselves out as knowledgeable experts when all we’re doing is 5 or 6 or 7 deals a year?
3 thoughts on “The Value of A REALTOR”
hi James, you’ve hit the nail on the head at the end… all about productivity… to be seen as an expert and to earn trust, you need to show the results, i.e. the 50 deals.
I haven’t crunched the numbers but I would guess that agent density goes up in higher value markets since agents can nearly survive just on their “guilt” clients. (Friends and family that know they would hurt the agent’s feeling if they use anyone else.) It may be very difficult for an agent in those kinds of markets to ramp up their volume due to the “stickiness” of those relationships.
Lower-priced markets present perhaps a greater opportunity to get a return on marketing investment (paradoxically given the lower price point) because agents are competing with other agents on an equal footing and not with agents that have a personal “in” already in place.
I have no idea if I explained that well. Main point -> 6% commissions protect incompetent agents in higher-priced markets more than lower-priced ones. Growing productivity there is harder.
OMG! I’ve never heard it referred to as ‘guilt clients!’ That’s choice but correct! Though it is rarely talked about, I know the recruiting consciousness in traditional offices holds that everyone has family and friends, and if a recruit can sell that handful of people before burning out, then it’s worth it for the company. It’s a very cynical view, not at all unlike typical multi-level marketing schemes where the person you recruit is not as important as the people the recruit may put you in touch with. That’s why I believe the number of deals done in a year is a good gauge of the quality of the agent you’re hiring. Many deals = deep experience in putting good transactions together and superior ability to hold transactions together until closing.