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It鈥檚 the real estate agent鈥檚 favorite line in the book.
鈥淵ou get what you pay for.鈥�
This phrase is used to justify the high commission rates traditional agents charge. The implication is that if you want full service with all the bells and whistles, you have to pay for it. Sure, the premium treatment doesn鈥檛 come for free. But that doesn鈥檛 mean the pre-internet commission structure isn鈥檛 a ripoff now.
What exactly are you paying for? And how much are you paying for it?
It turns out, most consumers can鈥檛 answer that.
A by the Consumer Federation of America found that traditional real estate agents and brokers keep real estate commissions 鈥渉idden and poorly understood by consumers鈥�. This results in a lack of price competition and hurts the American consumer鈥檚 ability to make informed financial decisions regarding their largest investment.
鈥淔or most major consumer services, consumers can easily access information about prices.鈥� said Stephen Brobeck, the CFA senior fellow who led the research study. 鈥淭his is not the case with real estate commissions.鈥�
During their research, the CFA found that the vast majority of brokerages do not share commission rates in their advertising, on their websites, during phone inquiries, or even at the request of potential sellers.
This hasn鈥檛 happened by mistake. Brobeck insists the information would be accessible, or at least discoverable, 鈥渋f real estate firms wanted consumers to know what commissions are charged.鈥�
After all, the cost being hidden from consumers isn鈥檛 just a few hundred bucks 鈥� it鈥檚 massive. As stated in the report, real estate commissions 鈥渞epresent one of the most expensive products purchased by many consumers.鈥�
Listing agents typically charge a commission of 5-6% (depending on the region) and split the commission with the buyer鈥檚 broker. For a $500,000 home, the typical commission lands between $25,000 to $30,000.
When sellers raise concerns over these steep commissions, traditional agents often argue that 鈥渃ommissions are negotiable鈥�. In reality, this rarely happens. According to the study, 鈥�73% of listing agents refused to negotiate down their own portion of the commission.鈥�
Given all the mixed messages, it makes sense that the researchers found that only 44% of those who recently bought or sold a home know that a typical commission is 5-6%.
Until consumers understand how much they鈥檙e paying, what they鈥檙e getting for it, and what options are available, they won鈥檛 be able to make smart financial decisions.
Here鈥檚 what home sellers should know that traditional real estate agents aren鈥檛 telling them.
The typical commission of 5-6% has been roughly the same for the last two decades, even though the internet has made it faster, easier, and cheaper to sell homes.
There is no question that the internet has changed the way homes are bought and sold.
Prior to the internet, buyers relied on for sale signs, newspaper ads, magazines, and real estate agents to get access to Multiple Listing Services (MLSs) and find what homes were for sale. Today, consumers can pick up their smartphone and begin browsing listed homes on Zillow in a matter of seconds. In 2018, 96% of people who bought a home used the internet in their home search.
This immediate access to listings has created an efficient marketplace where your listing agent鈥檚 ability to read the market and correctly price a home is vastly more important than their network or whatever secret marketing weapon they claim to hold. Homes that aren鈥檛 selling likely need price adjustments, not fancy brochures.
While innovation has improved efficiency for agents and eased the time burden and hard costs of selling a home, sellers aren鈥檛 seeing those savings.
The U.S. Department of Justice the industry鈥檚 competitive landscape saying, 鈥淭raditional middlemen鈥攕uch as travel agents and stockbrokers鈥攆ace more intense competition that has propelled them to change, bringing consumers significant benefits. The real estate brokerage industry has been slower to change, with the result that consumers are paying higher commissions and fees than they would under a more competitive system.”
With over 2 million real estate agents in the US, there are plenty of competitors in the space 鈥� so why don鈥檛 agents reduce commissions? According to the DOJ , traditional brokers have聽 done everything in their power to insulate the industry from competition.
In the past, the DOJ has had to as traditional brokers, industry associations, and state commissions have used their influence to create a system that shields them from competition by restricting newcomers.
They concluded that consumers would 鈥渂enefit significantly from additional knowledge about the range of options available in brokerage services and fees.鈥�
The lack of transparency regarding commissions helps explain how brokerages have been able to limit competition and maintain the high rates they鈥檝e charged for decades.
Change is coming 鈥� and in Greater DC, it already has.
Among those attempting to bring change and transparency to the industry is . The modern real estate brokerage has earned the trust of thousands of home sellers with its salaried agents and flat fee listing model.
Mike Maher, Houwzer鈥檚 CEO and Co-Founder, started the company after getting fed up with paying high agent commissions when he and his wife started flipping homes. He realized how broken the industry was and decided to build a better option for savvy home sellers and buyers.
Unlike other brokerages, Houwzer is upfront with their pricing. Rather than charging 6%, they offer home sellers full service listing agents in exchange for a flat $5,000 fee plus 2.5% to the buyer鈥檚 broker, all paid at closing. No surprises or hidden fees.
The company recognizes that saving sellers an average of $15,000 may initially seem 鈥榯oo good to be true鈥�. Maher attributes this to the miseducation and opaque pricing that are rampant in the industry.
鈥淗ome sellers are told they鈥檙e paying a hefty commission for the full service experience, but they鈥檙e really paying for the inefficiencies of traditional brokerages. We strongly believe sellers need a knowledgeable, full service listing agent, but it shouldn鈥檛 cost 6%,鈥� Maher said. 鈥淚t doesn鈥檛 take more money to market a $600,000 home than it takes to market a $300,000 home, so why are consumers being asked to pay double? Because the system is flawed and brokerages can still get away with it.鈥�
While their approach saves people a ton of money, the value Houwzer offers their clients goes beyond that.
鈥淲hat we鈥檙e really solving is the lack of transparency and trust in this business,鈥� Maher said. 鈥淪elling a home is a major financial transaction, yet most people are walking in blind. They have no idea what their costs are, what their money is going towards, or what kind of service they鈥檙e going to get. That only makes things harder because this process isn鈥檛 just expensive, it鈥檚 also complex, infrequent, and emotional.鈥�
Houwzer鈥檚 solution: employing highly trained, salaried agents to pass massive savings on to home sellers without sacrificing quality of service. Their agents specialize in one side of the transaction鈥揺ither buying or selling鈥揳nd each agent has a full team behind them supporting the transaction.
Home sellers in the Philadelphia and DC regions have saved over $13.5 million in listing commissions by using Houwzer and heap praise on the company鈥檚 customer-service. With over 850 reviews, Houwzer has an average rating of .
鈥淪ellers no longer need to pay high commissions to get full service,鈥� Maher said. 鈥淭here are predictable, hard costs associated with a home sale 鈥� even more so now that the internet has streamlined everything. We provide everything you would expect from a full service agent. The difference is that we charge a fair price.鈥�
