 
I wrote this post over 2 years ago. (on February 21, 2008) I’m kicking it back to the top given the reason that things have gotten WORSE with Realtors…not better.
If there is a telling sign that the real estate business model is nearing a possible demise, you need to look no further than the reaction of most rank and file members of the National Association of Realtors when an attempt is made to engage them in spirited discourse.
In such engagement, the classically conditioned response seems to point out the opposing inquirer as some kind of interloper to be shunned and reviled. Is it that demeaning to answer questions about that what you do? Is the methodology of the traditional real estate business model so revered that it is beyond reproach?
Over the last 30 days or so we have inquired and discussed the notion that the sacrosanct real estate agent commission is not justified. Rather than make wild assumptions or broad sweeping statements we have posed an open question to tens of thousands of agents. We have posed these questions on blogs, we have discussed them on air on our radio show, we have asked the question on many social networks populated by real estate agents and we have even asked those agents we know and whom we have done business with.
While Plato, Socrates and Aristotle, deep thinkers all, wrote volumes as to the benefit of open dialogue and debate, real estate agents seem to follow a much different philosophical point of view.
Their point of view being, so it seems, is to be like the Machiavellian Prince. Machiavelli wrote in his most famous of works, the Prince, that one should be publicly above reproach but privately be ready to do things of an evil nature in order to achieve his goals.
Unlike Plato and the other great philosophers mentioned herein, Machiavelli believed in doing anything necessary to preserve the status quo.
The Machiavellian ideology displayed by many real estate agents is evidenced by the deeming of reasonable inquiry as being pejorative to the individual and to the “profession” as a whole.
Recently there was a post on the popular real estate oriented social network, Active Rain. In the post, an agent from Illinois, Kelly Sibilsky, asked a public question as to what clauses one would add or delete to effect a better listing agreement. Admittedly she stated that she is frustrated with her current listing agreement and that because of the small print it is often confusing to her Seller clients.
As we had previously written a story regarding the type of listing agreement we advise Sellers to seek from their agents, we recommended the same. The article was named, The Listing Addendum Every Seller Must Have And Most Agents Will Never Agree To. It is aptly named as most agents would never think of providing Seller’s with any great detail of what they will be doing to actually sell a property.
The document we drafted would actually hold the agent accountable for their actions and would be enforceable in the event of non-performance, misrepresentation or negligence. Ms. Sibilsky followed the party line and stated that while she indeed did agree with most of the document, she would never sign it either.
While she states that she “tells” her clients what she will do, it is obvious there is no way she wants to sign any agreement that obligates her or gives the Seller any enforcement options. More importantly she said that “I don’t believe that what I spend on advertising correlates to the fee I charge. Just like other professionals, we are being paid for our expertise, time, etc”
I have heard this nonsensical attempt at justification from many agents. So she was pressed to further justify her position. She refused. How unoriginal.
In comparing her status as a real estate agent to “other” professionals, we looked into how that comparison would fare. While the criteria to become a physician, CPA or attorney are widely known, I wonder if her clients know that the criteria for becoming an agent in Illinois is :
a. having at minimum a GED
b. being a minimum of 21 years of age
c. taking a 45 hour course
d. and passing the licensing test.
In contrast, a nail technician in the State of Illinois has to take 350 hours of training. That being said, the law is what the law is, but the professional comparison is hardly relevant.
While I truly love a spirited debate and asked Ms. Sibilsky to please expound upon her answers, she tired quickly of our discourse and said “While I can certainly respect that you have a different opinion, if you would like to try to stir up something or engage in debate, use your own blog or radio show to express it”.
So we are. It’s not like we had a choice either as she quickly deleted our comments and ceased taking comments on the subject altogether from anyone. She believed and stated that her thread had been “hijacked”. Since when did debate become a synonym for a terrorist act? It must be that Machiavellian agent-speak we keep hearing about.
Without the ability to continue our discussion, we began to seek answers on our own. As has been par for the course, we can not seem to get anyone to tell us directly what they do to justify their commission. However this was the first time someone took their toys and went home. I doubt it will be the last time.
So we began to seek answers elsewhere. Recently we stumbled upon an article that referenced a study completed by Stanford University.
The article and the study, questioned the value of a real estate agent in a typical transaction. It attempted to quantify the role and monetize the value of the participating real estate agent.
With great specificity the study concluded that there were six areas of involvement in a transaction for which a real estate agent could justify a fee.
Those six services are:
1) Preparing homes for sales, circulating flyers, placing advertisements, holding open houses, and recommending the house to buyers
2) Assisting with negotiations
3) Matching buyers and sellers
4) Providing access to the Multiple Listing Service
5) Providing market information and recommendations on the asking price
6) Assisting with paperwork and legal documentation
The study went on to say that items 4, 5, and 6 were estimated to have a value of $1,400.00 in total. This would only justify a commission on a home with a sales price of just $23,000.
Finally, the study stated that for a real estate agent to warrant the continuation of the compensation as now exists in the current business model, it must mean that items 1, 2, and 3 listed above must be quite valuable, or in more likelihood, highly overpriced.
In reviewing items 1, 2, and 3 above it is easily seen that the bulk of the value would be predicated upon the degree to which a Listing agent markets a property.
Isn’t this what Seller’s expect? I believe that the consumer expects the agent they list with to market their property and find a buyer. Our listing agreement addendum that we spoke of would provide the Seller with a detailed, itemized and comprehensive marketing campaign so that the Seller would know for sure what the agent was doing to sell their property. Or what the agent was not going to be doing. I don’t care if an agent spends a single dime marketing a property if they don’t want to. That is, if they are open and honest with a Seller and tell them their intentions exactly.
Does anybody really think that actually happens. Or in a more sinister way, does the agent “tell” the Client they will market the property, while knowing full well they are not? Isn’t this starting to sound a lot like Machiavelli’s Prince?
In the case of Ms. Sibilsky, we took a look at her website. She mentions a tremendous 24/7 marketing plan that she commences for each of her clients. But while sounding great, there is no definitive way that the client could hold this agent accountable. Without the benefit of an actual written contract, the Seller would not have anything to challenge and enforce.
What becomes even more suspect about her marketing plan, is while the website, like so many other agents websites, states they will be performing yeoman efforts in the marketing arena, behind closed doors, or what many think are closed doors, the  agent tells a different story.
In a response to the comment we posted, she stated the following: “I don’t believe that what I spend on advertising correlates to the fee I charge”.
This is what so many consumers have a problem with. Are agents no different than the “Tin Men” of yesterday? Will they say anything that gets the Seller to agree to the listing without really telling the Seller what their real intentions are?
In reviewing the Stanford University study you can clearly see that most of an agent’s involvement in a transaction is quantifiable. How can any agent say that their marketing expenditures do not have any correlation to their fee? What do they think the Seller believes the agent’s job to be? Do real estate agents really think that Sellers are willing to part with 6% of the sales price because you enter data on the MLS, install a yard sign, and host a few wine and cheese parties?
We have begun talking to many homeowners and to an individual they have told us that they believed an agent’s primary role in a transaction was to market the property.
There has to be some oversight here, we know some extremely successful agents who make their mark everyday. I know first hand that they are out there, but it’s the other agents, the ones who promise the world in public and act to the contrary in private that are, in my opinion, causing the malaise of incredulity in the real estate industry.
The Machiavellian real estate agent is manipulative and not at all credible or trustworthy. This type of agent acts in a manner that allows them to maximize their financial gain while minimizing their relative expense, regardless if their actions are contrary to the best interests of their client. They believe that their actions are justified as being necessary to affect their needed result.
Mere questions and engaging debate is seen as a verbal attack not just upon their person but on the “profession” as well. Ms. Sibiliski wrote, that comments regarding her post that sought to find out the truth were “inflammatory” and were designed to “attack the real estate profession”.
Remember, our comments to Ms. Sibilsky were in RESPONSE to an open question she posed on a social network. When you ask for input do you wish only to hear from the choir?
True change can’t be found by ignoring empirical data and the contemplation of fact. Deduction and introspection are requisite to accepting and implementing change. Most agents we have found become quite reticent when a different position is brought to light regarding the real estate industry. Their reaction, as seen with Ms. Sibiliski, seems to be radical and often anti-intellectual in nature.
Opposing viewpoints of the current real estate business model are viewed as a personal attack on the status quo.
In tandem with the rise of the Internet and the fall of the housing market, there has been the emergence of new ideas and methods for selling real estate. Today’s real estate agent instead of wallowing in gloom may be better served by implementing innovation and accepting change.
There are many aspects to the divisive nature of discourse with real estate agents. There is obviously much to discuss about the business, and about the current state of the market.
It is in the course of heated exchange that new ideas are conceived. It becomes too hard to protect the status quo when irrefutable information regarding the need for overhauling of the current business model is presented.
So the unrepentant agent decides to meet open discourse with the armor of ignorance. As this defense continues to evolve it becomes increasingly difficult for the consumer, who is indeed watching AND reading as these events unfold, to keep what little faith and credibility that may remain in the real estate agent “profession”.
So was Ms. Sibilsky “attacked” as she alleged? Of course not. What she and many of her colleagues do not realize is that the scrutiny of the status quo is now, more than ever, unrelenting and inexorable. The rapid attrition of the real estate agent is most assuredly correlative to their inability to respond to change and spirited dialogue.
Machiavellli realized later in life that change was inevitable. What real estate agents do not realize is that you can be a Machiavellian businessperson, in the true sense of the word, without being Machiavellian, in the popular definition; that is, why don’t you actually try to be effective without being unethical.
I admire many real estate agents and there are many who I hold in great regard. It is unfortunate that they are on the endangered species list of Realtors. I need to cherish my relationship with them because it is becoming readily apparent that we are indeed reaching the end of relevant discourse with most Realtors.
It is a most unfortunate circumstance.
Wow, excellent essay. The internet continues to empower the consumer, and the old guard continues to resist, rather than embrace, the resulting evolution.
Change is inevitable and exciting. As a Realtor myself, I work in what seems like the most inefficient business environment you could possibly imagine. I wish more of us were open to new ideas, alternate concepts and discussion about how to create a better system for consumers and the professionals that represent them.
Hello Diane,
Thank you for your comment. I think we all need to strive to become beacons of light for the consumer.
I read this article with some interest as I have been asked to jusify my fee in the past. What the article either failed to mention or glossed over is the break down of how commissions are split.
Let’s take a typical commission of 6%.
Three percent each to the buyers and sellers agents.
Of that 3%, the agents broker gets (in my case) 20%.
The Corporate office gets 7% of my 80%.
Which leaves me with 73%.
Broker- agent splits vary from office to office. From 50/50 to 100% for the agent (though these are accompanied by a high office fee)
Let’s put some numbers to this. Say a home sold for $250,000 with a 6% commission. The commission is $15,000 split 50/50. $7,500 for the listing agent,
minus 20% for the Broker leaves $6,000. Subtract from that 7% for corporate and we get $5,580. Not bad for a few hours of actual work, right. But wait, I need to set aside 30% of that for Uncle Sam. That leaves me with $3,906. And what about office, desk, administration fees, whatever your Broker calls them. They can range from $500-$2,000 a month in our area. Of course the lower the fees the agent pays, the higher the percent of the commission the Broker gets.
And let’s not forget Association dues. National, state and local realtor boards all require membership fees. There are also fees for websites, cell phones, computers, MLS membership, higher auto insurance because I drive clients around in my car looking at properties. Then there is continuing education, license renewal and let’s not forget the “gas and stamps” mentioned in your article, plus flyers, postcards, mailers, office stationery, etc…
With agents doing eight deals a year on average, how much are we really making?
Hello Bill and thanks for your comment.
This article did not “fail to mention or gloss over” anything. With all due respect, your business arrangement and what you personally net, is unfortunately of no relevance to the justification of commission.
Value of a good or service can not be predicated upon the deal you cut with your broker. It certainly can not be predicated upon your expenses in their entirety. That is wholly unrealistic and borderline absurd.
I, and no Seller I know, would have any problem with an accurate amortization of your expenses as they SPECIFICALLY relate to their respective property. That is to say, that I doubt all of the aforementioned fees when appropriated to the time spent on a SPECIFIC property, amount to all that much.
You ask…”With agents doing eight deals a year on average, how much are we really making?”….again with all due respect, the consumer does not care and it is not relevant to the value of services rendered. I doubt many if any Sellers at all are told they are being charged what they are because the agent needs to pay for gas and stamps.
I would advise two things right away based upon your comment.
1. Find a new broker…paying 50% is nuts
2. If you are only doing 8 deals per year and you say your average net is just $3,906.00…you may want to find another line of work. Seems like a ton of aggravation to go through to net just $32,000 per year.
3. Lastly, as an independent contractor everything you listed above should be tax deductible..so you may want to find a good accountant.
In any event, The consumer could really care less and the sooner most agents realize that commission is not life support the better.
Don’t worry though..I am sure it won’t be long until the next comet comes!
As a Realtor yes it does need to change. Not becuase of the fees. I will debate my fees openly and on the radio anytime. Yes with the availabilty of getting a Real Estate lisence so easy where all you have to do is read a book take a test and pay a couple hundred bucks to NAR and you are now a Realtor.
If you want to make a debate lets bring all the people in the Transactions into this. How about the appraiser that charges you $350 to guess at the value. The Real Estate Attorney that charges you to move documents. Lets talk about Mortgage Brokers and Retail VS wholesale lenders. Let’s talk about Builders.
Not one of my clients has lost money in a down or up market. Do I as a Realtor make to much NO. You are not required to pay me. There are FSBO and your free to go research your value and you can go and hire an appraiser. But you need to make sure the appraiser has all the information and hopegully make sure they are not using zillow.com to get your value. Oh by the way make sure you check that he is not using short sales and forclosures as comps.
There is alot invloved in Real Estate and there is alot of needed knowledge. Havingsaid all that do we need reform? Yes ! Do we need to pick on just the Realtors ? NO ! I am all for change and happy in the market we have now. The reason I am happy is that now we can dunp idiots that got alot of people in trouble. We can now flush out the builders that raped the buyers for the last 10 years.
I just bought another house in 2006 jan. I am not losing money on any of my homes. IS this market bad? NO it is a false market. By a false market we have our so called MBA in the metigation departments that need to return them. I as a Realtor have been helping homeowners try and save thier homes. Free I may add because some Realtor and Mortgae Broker thought it would be cute to put a working family in thier dream home. Sub Prime loans are not bad if you know what your doing. Most do not and should not have use them. Most Realtors don’t know about money in general and don’t know what type of loans are out there.
I know this is all over the place but I have to go and try and tell a bank that they are idiots. Example homeowner is trying to refi to prevent going behind in mortgage. Lender takes app and processes it. Calls an appraisal company they come out take the $350 from the homeowner calls back in 3 days and tells them oh your property is 1/2 what you paid for it. The other one got the appraisal and then had the lender do a review and says it is worth 1/2 of what the appraiser says.
Now they call me. So I take a look and low and behold both appraisers used short sales and forclosures in the appraisal. The Reviewer is using software that uses short sales and foreclosures to total values. The mitgation department MBA says they can’t help the home owner change the terms. So they would rather have $300,000 in the house now they have to spend another $150,000 to foreclose sit on it for 1 year then hire another company to watch it and then clean it hire a Realtor to sell it now the bank has about $500,00 0 in the home and going to sell it for $250,000.
Which brings me back to how appraisers are comming up so short on appraisals and breaking the rules of appraisals. Which brings us back to the idiot brokers and the dead beat boards and let’s not forget the very very crooked MLS system. How does this play you ask ? Realtor A sells a bank property and puts it in the MLS system as a good sale Realtor B does a short sale (By the way any Realtor that list a property as a short sale should lose thier lisence) and puts it in the MLS as a good sale. Now you have Realtor C doing a listing and she uses the Two sales as comps and tells the homeowner thats the value. The lie becomes a truth. Now you have the appraisers doing the same thing and then you have zillow marketing the lies. Now we have homes worth more in parts than as a whole. Would love to know when something became worth less than what it cost to make.
I had appraiser give me my clients money back after I told him since we could not refi the house because the his appraislal we were going to send it to the insurance company to lower the insurance. He could not get the concept that his work said the value of the home was now below by thousands and thousands of dollars what the insurance companies said it would cost to rebuild the home if it burned to the ground.
So in short while I take my over payed job and go try and save a few people and hopefully amke some changes to the process why not really do some good and beat on the process. Banks make more by selling wholesale to the retail lenders and mortgage brokers who add sometimes 3% or more on to that and appraisers who told everyone during the boom the property was worth more than it really was and the Realtors who said they knew what they were doing and The builders who started selling to speculaters and did not tell the buyers !!!
Shame on the Realtors who did not check the TAX records for the clients to let them know the builder was selling to speculaters. Thats how you know the end is near.