Why do real estate agents get paid a percentage of sale price instead of a flat fee for service?


The real estate industry in my opinion has been slow to evolve. Of course, the percentage system is not unique to residential real estate. You will also find it in commercial real estate, property management, and financial planning, law, mortgage brokering and stocks and bond trading, to name a few.

It is an age old system with a few serious flaws but a couple of great benefits. Let’s talk about the benefits first.

1) Free for buyers

It has been a tough year to be a home buyer. I keep saying this, but anyone who has been looking for the perfect home, I’m sure will agree. Not only have we witnessed rapid price escalation and bidding wars, all spring there was a serious shortage of listings and a higher volume of sales. The market was and still is very unbalanced.

When you have nine agents and their buyers bidding for a property, at the end of the night, you will be left with one winner and eight losers. That is a huge waste of time for everyone but the winner. The winner likely got here by losing out once or twice already. It is a long road to buy a home. Some drop out along the way. Some keep at it for months or even more than a year. If all those buying clients had to pay their agents for all the time that they weren’t successful, that would really add up.

2) Free for unsuccessful sellers

Not every house sells, not even this year.  So agents share the risk with their clients. If a house does not sell, it costs the seller nothing and it cost the agent wasted time and some money for photos, home staging and administration and other sundry costs. Essentially, the agent is sharing the risk with the home seller.

The flawed model

I’m not a fan of commissions. I would much rather have a salary and regular working hours and some stability in my life. Half of my time is wasted. I just don’t know which half.

The industry is under pressure to change, but it has to be a sweeping change. Introducing a-la-cart fee for service, or flat fees on listings or any of the other models talked about for decades will not work until they can quickly replace the current model.

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