Has the desire for better commission compensation squashed innovation in the real estate industry?
There’s a great deal of focus these days on commission compensation, and the creation of an easier way to buy and sell real estate. It’s certainly not without merit. I enjoy ordering groceries online rather than expose myself to the grocery store environment. Hardly a day goes by that an Amazon package doesn’t show up at my house. Is it convenience or cost that drives my online shopping? I’ll err to the side of convenience. The difference in price, sometimes lower and sometimes higher, is of little consequence since my purchasing behavior has changed forever.
As an industry, real estate professionals, the National Association of Realtors and large brokerages have failed the American consumer. As convenience shoppers, we neglect to take into consideration changing preferences and rationale. We justified our industry’s traditional means of commission compensation while prices for everything from cars to tomatoes began to fall due to a new form of competition. It’s time the real estate brokerage industry woke up to the realities of modern times.
Most real estate agents are riding the coattails of the top 10% of agents in the business. That 10% is probably worth the requested commission compensation. The other 90% are probably not, but they’re able to get a higher commission by claiming “highest quality service.” They’ve actually contributed to the commoditization of the real estate agent. What is the difference in service between the top producer and every other agent? They all drive nice cars and belong to the best clubs, especially that one called MLS.
If it appears that the most-offered seller commission compensation to buyer’s agents is, say, 3%, that becomes the standard by which agents are measured. Why be concerned with bettering the experience of the consumer when I can earn more selling real estate than selling shoes, or worse, returning to corporate America? Agents, therefore, have no interest in changing what can be a lucrative means for earning a living. Since agents have no interest in this area of innovation, why should the broker/owners, who themselves largely came from the ranks of sales associates, seek to ease the sell/purchase transaction? And, why should the local Association of Realtors, whose members pay their salaries, seek to develop innovation in compensation or convenience? And so on, and so on.
It’s been said that if you can’t control your business then the government will do it for you. I fear we’ve reached this point. As an industry, we can’t seem to respond to both lower commission compensation expectations and the convenience of the consumer. We know there needs to be change but seem impotent to innovate. The industry has traditionally been sustained by headcount. The more licensees/sales associates, the better. That’s the mentality of state real estate commissions, real estate trade associations, and even brokerages. The industry takes no position on the low-to-no producer, we only want our annual and monthly fees. Until this mentality changes, there will be no diffusion of innovation in the real estate industry. Only government intervention with forced change will suffice to make change a reality.
Mike Thornburg, CRB, is the talent development coach for Helen Adams Realty.