Recently I have been trying to research how and where the 6% commission came from. I am not trying to suggest any anti-trust violations or any sort of collusion. The amount a real estate agent charges is up to themselves or the brokerage they work for. Still, the overwhelming majority of commissions charged in the Phoenix market is 6%. So I went to google to try to find some answers. I wanted to find the history of where this number came from. What I found instead were dozens of articles about how the 6% model is dying. After 16 plus years of selling homes in the Valley, I’ve heard this before. The thing is I don’t think it will ever die.
It’s what the market will bear
If you ask most Realtors why they charge 6% the 1st thing they will say is “Because I am worth it” Ok… so it’s a skill or experience thing? So new agents fresh out of school should not charge 6%? Should there be a set number of homes sold before you they are worth 6%? When I went back to real estate school to get my brokers license this topic came up. A fellow classmate who knew I worked with a flat fee model said to me that they were worth the 6%. I kindly asked when they were going to start charging 7%. They were a bit confused but I explained with their logic of worth, If they continued selling homes they will gain more experience and skill. Thus adding to their value. I am not going to go into the reasons why I think charging 6% is too much. I wrote a blog post about this a few month back you can read here. The fact is, most Realtors charge 6% because that is what the market will bear. It’s the norm. It’s what the consumer is custom to paying so that is what they do.
We just pay it
So what have we learned so far? Well, we don’t know where the number of 6% came from but we are comfortable paying it because… well… because that is what it cost. We as consumers are getting complacent when it comes to fees. Ever wonder why a car dealership charges you a delivery fee for the new car you bought? You’re driving it off the lot but they charge you for having it delivered to the dealership. My cell phone bill has a service fee and a subscription fee. How are they different? My point is most consumers don’t shop around when choosing a Realtor. National numbers show that about 70% of home sellers go with the 1st agent they meet. Think about that for a second. 7 out of 10 times the 1st person in the door gets the listing. People spend more time looking for Starbucks coupons to save a buck on their latte than interviewing an agent to sell their home. Now you are starting to see why Realtors charge 6%
How to break the habit
The best lead an agent can get is a referral. Ask any agent you know and they will say the same thing. It’s not hard to find a referral from a friend or co-worker. There are over 60,000 licensed real estate agents in Arizona so chances are you know someone yourself. So when it’s time to sell your home you invite the agent you were referred to or the one you know yourself. Regardless of how good that agent is, 7 out of 10 times, they will get the listing. There is a simple way to break this pattern. Interview more agents. They are not all created equal. If you are not sure how to interview an agent you can go online and get a list of questions to ask. I get the fact you might want to use a friend or the agent you were referred to. Do yourself a favor, take the time to interview more than one agent.
How real estate fees should be
I am proud in the fact that in my 16 plus years of selling real estate I have never charged 6% to sell a home. I have always worked with a flat listing fee. Some of my past co-workers who have left the flat fee model have tried to convince me to go the 6% way. They tell me that I am leaving money on the table. I don’t see it that way and I don’t see the sense in charging a magical number that no one knows where it came from. Instead, my listing fee is based on a business plan. I look at my cost of marketing, promotion, and time it takes me and my team to sell a home. For a quick overview of my listing services, you can click here. I don’t know of any other business model besides real estate that just blindly picks an amount to charge because that is what others charge. Not every agent uses the same methods to sell a home but they charge the same? You need to have a plan. You need to know the cost. You need to have a formula that makes you successful and profitable. Now you see why 90% of agents fail. After exploring all the reasons of the 6% fee and with consumers having more access of the product I don’t see the business model going away. That is OK. My small team is happy to service the 30% of home sellers that do a little more home work. If you are thinking of selling your home. Give us 20 minutes and we will show you how you can save thousands with our full service, flat listing fee.