Are Real Estate Commissions on the Decline?

Could the six-percent commission standard become a thing of the past? Economist Steven Levitt along with industry expert Brad Inman have reason to believe the commission structure of the real estate industry is going to change, and change drastically. With the alternative fee for service or flat fee MLS models in conjunction with the evolution of the internet and the way information is being displayed, home sellers and home buyers are ascertaining more control over the real estate transaction. With the recent development and launch of websites performing functions of a traditional agent the internet has literally become the new sales agent according to Brad Inman. It is estimated that 90 percent of the buy side work is done by the purchaser. That being said, how much longer can buyer agents expect to earn 3 percent on a sale?

 

Home buyers are not alone in their abilities to find useful resources and alternatives to the traditional model, home sellers now not only have the opportunity to list their homes in their local Multiple Listing Service for a low flat fee – broadening the market potential exponentially – they have the opportunity to take advantage of websites offering home appraisals, valuations, neighborhood information and advice on how to properly market their homes.

 

Not only is the competition becoming fiercer for traditional brokers, but they are continuing to turn more attention to the commission structure through ongoing legal battles with the Department of Justice. The DoJ has claimed real estate agents “collude to prop up commission rates through such anti-competitive actions as ‘boycotting’ the listings of discount brokers.” The DoJ has also charged that attempts by the National Association of Realtors (NAR) to raise the minimum requirements laws of the listing agent is also anti-competitive as it attempts to divest the industry of discount and flat-fee brokers.

 

Scott Levitt doesn’t stop with declining commission he offers his parallel to the fading profession of travel agents. With the Multiple Listing Service the main service agents offer their clients Levitt believes alternative models will win out, driving down the commissions and possibly driving out the traditional agents.

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