I am not sure if Redfin understood the ramifications of trying to win market share as a new broker in Washington DC by offing to list a home for 1% commission. That is an awful dicey precedent to set. Sellers all over the country might get the idea that any broker should be able to list any home in any city for 1%. That is definitely NOT how the real estate industry grew to $60 billion. Bravo to Redfin for letting all us home sellers know what is possible.
But, the Redfin salvo brings up an even more intriguing question: if a listing agent can list a home for a mere 1%, why can’t the buyer’s agent get by on 1%? As a home seller who is customarily expected to pay for the agent who represents my buyer, that is a question I would really like answered.
I think it would be fair to say that once a home is in escrow, both the listing agent and the buyer’s agent work about equally hard. Both have as a primary responsibility, navigating the escrow to a successful closing. They both make lots of phone calls (if they are doing their job) and send lots of documents back and forth. So, what it comes down to is, who works harder before a home gets into escrow?
The full service listing agent has a good deal of work to do to market a home, but it is pretty much a fixed-time effort. Their tasks include doing a CMA (Comparative Market Analysis), taking pictures, creating a flyer, posting information on the MLS, holding an open house, etc. A lot of work to be sure, but not much variability from home to home.
The buyer’s agent’s tasks are much more limited in scope, but with much greater variability. Their workload consist of two major tasks: doing a CMA and driving buyers around showing them homes. How many homes they show depends on the buyer, but we know from research that the average buyer visits ten homes before they find “the one.” If we assume an average showing time of one hour per home, that equates to roughly ten hours of showing time.
As an order of magnitude estimate, I think it is fair to say that a buyer’s agent works about the same number of hours, on average, as a listing agent for a typical home sale. So, if a listing agent can get by on 1%, why are sellers forced to pay 2.5% – 3% to the buyer’s agent? What is the justification? If both the buyer’s agent and seller’s agent do similar things and work a similar number of hours, why is there such a great disparity between the buyer’s agent’s compensation and the seller’s agent’s compensation? What gives?
The next time you go to sell your home, you think about the answer to that question when you cut a check two to three times larger for the buyer’s agent. If it aggravates you, good. That is the beginning of how we change the real estate industry for the better.