Real estate services have traditionally been offered as a fixed price bundle. The price did not vary whether the consumer needed or used all the services included or not. Sellers typically paid a 6% commission to their listing agent, who then offered a portion of that to the agent working with the buyer. In this area, the buyer’s agent is usually offered a 2.4% commission in Wake County, while it has typically been 3% in other parts of the Triangle area. Commission rates did not change with the price of the property, $1,000,000 luxury homes paid 6% ($60,000) as did $50,000 condos ($3000). Buyer’s agents generally did not negotiate what they were paid, they agreed to accept whatever was being offered by the listing agent. This could provide an ethical challenge at times for the buyer’s agent if their client was considering 2 properties offering different commission rates. Agents got paid quite well when they had an easy sale of an expensive property, but could struggle to make minimum wage on a difficult sale of a low priced property.
Change began years ago on the sellers side of the transaction. Alternate business models began to pop up which offered sellers choices in services and fees. Sellers can still choose a full service, full commission, pay only when you close listing agreement, and many still do. The advantage is that the seller puts out none of their own money until the sale is consummated and the real estate agent bears the risk of not being compensated for their time, overhead, advertising, etc. if the property ends up not selling for any reason. The biggest disadvantage is the fee is usually considerably more than it might be if the seller were willing to share or assume the monetary risk of the property not selling. The other end of the spectrum is the pre paid flat fee listing where the seller pays a flat fee up front for specified services, generally saving considerable money over the traditional full commission model, but assuming all payment risk if the property does not sell. Flat fee brokers typically offer a menu of services and fees that a seller can choose from ranging from hourly consulting to the full bundle of services typically offered by traditional full commission brokers.
A la carte services on the buyers side have taken longer to catch on for several reasons. The way the real estate business has evolved is that compensation for agents working with buyers is offered and paid for by the seller through the listing agent. A buyer’s agent is required to perform certain services in order to be able to claim the commission offered through a poorly defined and understood concept known as procuring cause. If the buyers agent does not perform the services necessary to establish procuring cause, the agent may not be able to claim the commission and it could be kept by the listing agent or claimed by another agent who performed some of the prescribed services. Since the buyer’s agent fee is paid through the listing agent and seller, the fee is somewhat hidden from the buyer, leading to the entirely absurd claim made by some buyer’s agents that their services are “free” to the buyer. This confusing system has limited consumer demand for a la carte buyer’s agents services, but this appears to be changing.
Interesting business models are beginning to pop up to allow buyers to choose services and fees. One local start up allows agents to set prices for various services including showing houses, writing offers, attending inspections and closings, etc. This web site is not a brokerage, they are basically a middle man offering to match up buyers and agents. This all sounds great in concept, but fails to take in to account the unique structure of how agents working with buyers are typically paid through the seller and listing agent. The web site seems to promise buyers that they can pay an agent to provide them access to see a home they want to purchase for a nominal fee ($50 – 75), then the buyer can work through the listing agent and collect a 3% rebate of the purchase price for their efforts. The real world does not quite work that way, at least not yet. Since the listing agent controls the commission and the buyer has no claim on it through the current rules of the MLS, buyers who try this approach are likely to find the listing agent will want to keep all or at least part of the commission offered to the buyer’s agent for the extra effort involved in doing some of the tasks normally performed by the buyer’s agent, with the buyer having little recourse other than to buy a different property.
Goddin Real Estate has been a pioneer in offering alternative business models for buyers. Our hourly program is designed to offer buyers the most flexibility in choosing services and fees and to receive the benefit in the form of buyer’s agent commission rebates at closing. This approach recognizes that the current structure of real estate commissions make it difficult for the buyer to truly control how the the buyer’s agent commission is paid and to whom. GRE’s hourly plan is designed to work within the existing system to provide buyers with both excellent service and experienced advice and guidance and also give buyers an opportunity to control the services and corresponding fees that they do ultimately pay when they purchase a property.
For more information on how Goddin Real Estate can work with you to realize your real estate goals while providing services and fees geared toward your needs and wants, please contact John Goddin for a no cost initial consultation at John@GoddinRealEstate.com or 919-968-2100.