From this blog in 2005:
People who sell $1 million condos often complain that paying a 6 percent standard (read “fixed by collusion” among realtors) commission is too much ($60,000 for what might only be a few days of work). Economists who have studied the real estate market, however, find that in some ways the commission is too low because realtors don’t work very hard to sell clients’ houses compared to their personal houses. In other words they sell a customer’s house relatively cheap so that it will sell quickly rather than work for many weeks to get the best price and 6% of the extra.
Why haven’t we seen anyone propose a commission structure that says the realtor gets a 25% commission… but only on the amount above the assessed value of the property? Your typical $1 million NY or Boston apartment is assessed at maybe $850,000 and could be sold for that price with almost no effort in a few days so the commission paid on such a sale shouldn’t be more than $1000. If a realtor could sell the place for $1.2 million via clever marketing, however, she should be entitled to a fat commission.
In the intervening 16 years, various Internet services have made it easier for owners to sell their own houses. We can assume that realtors add value, since most people still do hire realtors, but they’re adding value on top of an easy-to-establish base, e.g., 10 percent below the Zillow Zestimate. Presumably a “for sale by owner” (free) listing on Zillow could easily sell a house at 90 percent of its Zestimate. (5 minutes of marketing effort!) If so, the structure that would align sellers’ interests with agents’ interest is a commission that was 0 percent of the first 90 percent of expected value and 15-25 percent of the sales proceeds above that.
How can it still be case that an agent who does a terrible job, selling a house for 95 percent of its value, gets paid almost as much as an agent who does a superb job, selling a house for 115 percent of its value?
This is the kind of question I am pondering as we declutter and pack up for Jupiter, Florida!Full post, including comments