Real Estate Collusion and Misaligned Commission Incentives: A Personal Experience
I’ve been investing in real estate since 2003 and have often been frustrated by the buying and selling process. Despite technological advancements reducing transaction costs across various industries, real estate commissions remain exorbitantly high. This has led me to question if collusion within the industry is to blame.
After paying a 4.5% commission on a property sale—a significant reduction from the initial 5.5% my agent proposed—I decided not to sell another property until these rates decreased. The realization that I had to pay over $120,000 in commissions, which included a portion to the buyer’s agent, was particularly disheartening.
It’s important to know that real estate commission rates are negotiable, although many sellers are either unaware or reluctant to negotiate. During my negotiation, my agent claimed she had to fight her brokerage to even secure the 4.5% rate, suggesting an internal resistance to lowering commissions. She ended up receiving a 2% commission, while the buyer’s agent received 2.5%, a distribution that seemed unfair considering the work required to prepare and market the property.
The notion that a buyer’s agent would refuse to show properties to their clients unless the commission was at least 2.5% struck me as ridiculous. This practice does not serve the best interest of the client and underscores a misaligned incentive structure where agents are motivated more by the commission than by serving their clients’ needs.
During one of my transactions, the buyer’s agent demanded a $35,000 credit for window replacements late in the negotiation, further complicating the sale. Ultimately, I felt foolish paying a substantial commission to a buyer’s agent who seemed more interested in lowering the sale price than facilitating a fair transaction.
This experience has convinced me that buyers should directly pay their agents, fostering a more logical and transparent relationship. I believe a buyer’s agent’s value lies in their ability to identify suitable properties, submit attractive offers, and navigate the complexities of the buying process without unexpected financial burdens.
The lawsuit against major real estate organizations, which resulted in a significant judgment for collusion, has validated my concerns about industry practices. It highlights the need for a shift towards a more equitable commission structure that aligns with the services provided.
In summary, the real estate industry’s standard practice of high commission rates funded by sellers creates a conflict of interest that does not benefit homeowners. As we move forward, I hope to see a realignment that reflects the actual value of services provided by real estate professionals, benefiting both buyers and sellers alike.
