Thursday, July 13, 2006

No question that real estate commissions are too high and inject an unnecessary cost into the real estate transaction. Because the dominant business model for real estate brokers uses a percentage of the home value to establish their fee or commission, the escalation of home prices has likewise escalated the fees. There is nothing in logic or reason to suggest that the home value has anything to do with the process of selling it, nor that the broker has any right to participate in that value. Most of the blogs I've read complain, and rightly so, that the percentages are too high. Brokers have responded in some markets by negotiating these percentages down. Two problems with that. First, if the lower percentage is ok with the broker, then the guy who is not aggressive enough to negotiate is being deliberately overcharged. Second, and really the only problem, the percentage of home value should not be used for fee setting at all. As brokers we provide a service, and in future blogs I'd like to talk about that and a variety of other things involved in your real estate transaction, but for now, just the fact of service. We know what our job involves and we know what makes for a reasonable profit and knowing those things we should be able to come up with a fee for our service that is fair to seller and buyer alike. And we can. A flat fee for service is the only reasonable way to charge an owner for the process of selling his home. Because of the loose use of language even the words "flat fee" can't be used without clarification because some brokers advertise a flat fee and all they do is put it on an MLS with no service, other brokers descibe themselves as "discount" brokers, not a meaningful expression. If you'll permit me, in future blogs I want to expand on these and other issues and make as transparent as possible the entire process of selling or buying a home, including the distribution of your commission dollars. The latter may be of little interest since like a guy who's been robbed at gunpoint, what the robber does with your money is the least of your concerns.
Some of the blogs I've read and much of the talk I hear about the elements of the real estate transaction reflect the legitimate concerns of people with some "aspect" of the transaction, and why not? However like the parable of the blind men descibing an elephant, having heard the description you still wouldn't recognize an elephant. With your help and input I'd like to paint a complete picture of what you're up against when you want to sell or buy your home and the resources available to help you, one blog at a time. Thanks for reading.


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