Tuesday, February 25, 2014

Broker Compensation Changes Pt.2?

We've written posts before on how real estate brokers are paid, most recently this one talking about startups and others whose brokers don't get paid through a sales commission. Are changes for real?

The fact is, I don't know. Based on the money, you'd think so. But it's an H.L. Mencken public out there, made up of people who'd rather bite than switch. Why the home buying/home selling public continues to retain substandard brokers over good ones and pay everyone the same same based on the close of a transaction makes no logical sense. But then, neither does quantum mechanics nor Winter Olympics on the Black Sea.

In my final year of being licensed, I worked with three clients who paid me with a fee-for-service (FFS) arrangement. Two were sellers and one was a buyer. They paid upfront and saved thousands of dollars compared to a sales commission.

But I'd offered an FFS option for a couple of years, and no one was really interested, even after assessing how much money they'd keep. I've heard the same thing from other brokers over the years--people just choose the commission despite compelling evidence of significant savings with FFS. Change is slow, for whatever reason.

Returning to our lens is Gen.i.re, about whom we've written before. Apparently, this thing isn't going away. One of their brokers is hitting it pretty hard. We'll see if it has legs.

Will things change? Maybe. Brokerages are having a difficult time attracting young people to the profession, and it may be that Gen Y people just don't want to work on a commission basis. But change is problematic for most brokerages, because their business models revolve around keeping cuts of their agents' commissions. But the status quo light bulb is flickering.

Another factor is the present market. Despite the sunny exhortations of those whose objectivity is compromised by their professions, this market isn't going to be great any time soon. It's not flatlining by any means, but it's pulse is suspect, meaning steady commissions could be problematic. That's not going to attract many newbies unless they can count on a paycheck.