CEO/Founder of Ask DOSS, developing the best technology to make homeownership in AMERICA more affordable. #proptech #placetech #voicefirst
In spite of popular belief, real estate commissions are, in fact, negotiable. Even with all the innovative and technological advancements that have productively affected the real estate industry, consumers are still routinely told that the cost to conduct a real estate transaction is nonnegotiable. Unfortunately for consumers, 73% of real estate agents surveyed stated that they would not reduce their historically high commissions to less than the standard percentage of 6%.
However, it’s now 2020 and this pandemic has changed more things in the last few months than have been changed in the last few decades. The future of everything has accelerated, and people want to experience the promise that we’ve all been sold and told over the years about technology — the promise that technology is going to save us both time and money.
Can your home be effectively sold for less than 6% commission?
It doesn’t cost thousands of dollars to advertise and market a home. The primary way real estate agents market a property is on the multiple listing service (MLS). Other costs to market your home may include professional signage, lockboxes, professional photos, 3D virtual tours, professional booklets or flyers, drone footage, etc. However, many homes put on the MLS by real estate agents don’t include any of these professional marketing services. Unfortunately, many real estate agents use their cell phones to take pictures of their listings, and that’s it — other than lockboxes and signage, maybe a few laser-colored flyers for an open house, no other marketing spend is provided in their service to sellers.
In my experience, median-priced homes to multimillion-dollar homes cost the real estate agent anywhere between the low price of for-sale signs and a lockbox to $1,000 on the high end — that’s what it takes to market 95% of the homes in America. The remaining 5% of homes are mega mansions that require much more attention, money and skill to market.
In other words, if you are selling a $700,000 home and paying 6% in commission, that’s $42,000 of your hard-earned equity automatically gone. Based on 20 years of experience, observations and surveys, I would say chances are good that your real estate agent spent a few hundred dollars advertising and marketing your property and approximately eight to 10 hours total to sell it. The amount of money you pay in commission could pay off a car, credit card debt, student loans or your child’s education. If you could preserve some of your hard-earned equity, wouldn’t you want to?
Why hasn’t technology brought the cost to transact real estate down?
I believe there are five reasons that, despite us having the technology to do so, the real estate consumer’s cost to transact has not been reduced.
1. Real estate agents are doing a much better job at selling and telling consumers why the commission needs to stay 6% than the consumer is able to sell and tell real estate agents why they are no longer paying such high fees.
2. The real estate industry historically has been and still is agent-centric. The industry has indispensably placed the agent at the center of the transaction. This old-guard approach has collectively convinced, deterred and scared consumers from negotiating transactional costs.
3. There hasn’t been a practical and/or viable solution that’s consumer-centric by design — that is, a comprehensive solution, from the consumer’s perspective, that addresses the fact that the real estate industry is antiquated, expensive and fragmented.
4. Consumers haven’t been introduced to a solution that they can trust to support this change in the real estate industry.
5. The real estate industry at the local, state or national level can’t and won’t do anything to encourage or support competitive pricing.
When you know better, you do better.
I used to believe that knowledge is power. Today, I realize that old cliche couldn’t be further from the truth. It needs to be rewritten to say: “Knowledge has the potential to be powerful.” To know something, to understand it, to realize its potential and power, means nothing if you don’t put it into practice and use it to benefit yourself. Therefore, knowledge has the potential to be powerful, until it actually is powerful.
Most consumers don’t know that real estate commissions are negotiable. Most consumers are told by their real estate agent that real estate commissions are nonnegotiable, but that is not true. If you believe, based on the level of services that you need and want, that the cost for those services should be lower or negotiated, then know that you have every right to ask any real estate agent or find a real estate agent who will give you the level of service that you need and want to successfully carry out your real estate transaction.
What is the next era of real estate?
With all of the recent changes, the universe is pressing hard against the real estate industry to evolve and become more automated, less expensive and fragmented and better streamlined. With these potential improvements and solutions to an antiquated industry, a new breed of real estate agents and brokers will be conceived to better serve and support a consumer that wants more information and modern technology at their fingertips. The next era of real estate will adapt and adjust to the needs of today’s consumer.
However, today’s dynamic and tech-savvy consumer must demand that this legacy industry can’t continue doing business the same way it has done for the past 112 years. Consumers must support the change they want to see in the real estate industry. There’s an economical and innovative real estate brand in every region of this country. Seek out the agents and brokers who offer homebuyer rebates and provide the listing service you need and want at a reduced cost. And if innovative options seem scarce in your area, please know that your real estate agent’s commission is negotiable. All you need to do is ask.
Forbes Real Estate Council is an invitation-only community for executives in the real estate industry. Do I qualify?