In 2015, the National Association of Realtors’ “DANGER” report (Definitive Analysis of Negative Game Changers Emerging in Real Estate) acknowledged that consumers were demanding lower commission rates and that brokers and agents were responding with new pricing models that “will most likely become commonplace in the next 5 to 10 years. International buyers are particularly shocked by the high commissions paid in the United States, as the average commission paid to realty agents in places such as the United Kingdom, Australia and Belgium ranges from 1-3% versus the 5-7% rate which is common in the U.S. Usually, high commission fees are found in less developed countries with no public records and no reliable MLS. For example, in Belarus, commission rates can range from 5-15% but in other countries such as China and Greece, the government imposes high transfer taxes at 15% that discourage the transfer of property.
This is, of course, not the case in the U.S. Here we have a more efficient infrastructure, well documented public records and ease of transferability, and yet the real estate commission rates here are still one of the highest in the world among developed nations. The residential real estate brokerage industry, measured by commission income is over $80 billion – that’s $80 billion in equity extracted from families on an annual basis through traditional real estate brokerage models.
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For decades, real estate commission fees have been viewed as grossly inefficient and much debate has centered on the expectation that they would trend lower. It has been quite the opposite in the U.S. with organizations like the NAR and large corporate franchise entities controlling the model, as seen my some parties with recently filed class-action antitrust suit against the National Association of Realtors, among other real estate players. One way this is done is by indirectly forcing higher price levels through the MLS with a minimum “standard” with cooperating brokerage fees for buy-side agents, typically ranging from 2.5 – 3.0% in the U.S. requiring the listing broker to charge a percentage of above that’s typically comparable (i.e. 5-7% total commission). The U.S. was expecting an increase in efficiency that would lead to lower commission rates, but economists and other researchers had not factored in the resistance the NAR and other organizations.
The good news is, that despite some of the industry dynamics, it has never been easier to sell your own home as an informed home seller with online platforms like DwellOwner, thus saving thousands of dollars in unnecessary inflated commission fees — that have charged by real estate agents for decades. Nearly 100% of homebuyers search online to find homes and they generally start looking six months in advance of contacting an agent. Consumers have become empowered, with access to a wealth of information and we’ve already seen price levels decline across other industry sectors, challenging incumbents and forcing change that will benefit the consumer.
The financial benefits of selling as an informed homeowner are obvious and monumental, and can save you double-digit earnings on the return of your cash investment. For example, if you purchased your home for $400,000 and put 20% down, that’s an $80,000 initial cash investment. Let’s say a year later you decide to sell you home for $400,000, but do so by utilizing a tradition real estate agent. You would have to pay a 6% real estate commission, which amounts to a $24,000 price tag for doing business. That’s $24,000 stripped away from your return, or 30% ($24,000 divided by $80,000) of your hard-earned equity, as shown below. Even if your home sold for an increase amount, let’s say $435,000, you would still lose 21% of your equity if you were using a traditional real estate agent. And this example does not take into consideration all of the maintenance, tax, principal and interest payments you made, along with the time value of money that would show an even higher loss. Why give away 21 to 30% of you sale price on top of all that when you have full service MLS flat fee online real estate models like DwellOwner now available?