Real Estate Agent Compensation Ripe for Change

The article below was written by CleanOffer and published on October 6, 2006 as a "Letter to the Editor" in Inman News, a leading online real estate news publisher.
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Discount brokers taking advantage of 'age-old inefficiency'

Dear Editor:

Online discount brokerages are simply taking advantage of an age-old inefficiency in the residential real estate business. Real estate agents are paid a fixed percentage of the home's sale price. This amount paid is irrespective of how much time the agent spends on the transaction or what skill level they bring to the table. Hence, the key financial motivator for real estate agents is to be the one named in the closing papers.

This contrasts greatly with other professional service providers such as attorneys or accountants who typically get paid by the hour. The higher their hourly rate (hopefully corresponding with their skill/experience level) and the greater their hours, the more they earn.
Discount brokers capitalize on this real estate commission inefficiency by doing as little as possible. Just be there at the end and get paid. If they can get the other agent to do more work discounters will happily rebate the home buyer some of their commission.

As long as the current compensation structure stays in place, these pioneers will exploit the situation. If traditional real estate agents don't like it than they must change how they are paid. Otherwise they only have themselves to blame.

David Faudman
CEO CleanOffer Inc.
San Francisco