Real Estate Commission: A Corrupting Influence
Real estate commission is how real estate agents are paid for the services they provide. They receive a percentage of the price received for the property. Effectively, the real estate agent requires the seller of a property (the seller) to give the real estate agent a portion of the property being sold.
Another way to look at it is to say that the real estate agent, through the wording of the listing contract, effectively has his or her name added to the title deed to the seller’s property, so that the real estate agent becomes a co-owner. of the property. property. When the property is sold, the real estate agent receives a payment representing his or her share of the seller’s property.
Most readers will be aware of the arguments in favor of real estate sales commissions, so I won’t discuss them here. My focus is on the ways in which the sales process can be biased against all parties involved, when the motivation to earn a commission takes precedence over more important considerations.
Commission is a “winner takes all, loser gets nothing” situation. This increases the pressure on the real estate agent to secure a sale. Time is also a problem. If the real estate agent cannot secure a sale within a time acceptable to the seller, the seller may take the property off the market or away from the real estate agent’s agency. This will result in a total loss for the real estate agent.
Ultimately, the seller becomes an obstacle between the real estate agent and their commission goal. In order to receive payment for your share of the property from the seller, the real estate agent must receive an offer to purchase within the available time, but the offer must be accepted by the seller. If the seller decides that the offer is not acceptable, the real estate agent loses.
To win the gambling game that is real estate sales, the real estate agent may decide to tilt the odds in his favor, and there are many ways to do so.
At the listing stage, the real estate agent may use improper means to win the listing contract. These include overlisting at the valuation and offering dubious sales figures.
During the sales process, the real estate agent may be tempted to tell potential buyers things that are not true. I have seen many sales contracts with clauses designed to protect real estate agents from the consequences of false statements. Known as “porkies clauses,” they invariably state that the buyer acknowledges that any information provided to the buyer by the real estate agent is provided with the understanding that the buyer will not rely on it for any purpose.
When a buyer has made an offer and the buyer cannot be convinced to increase their offer, the real estate agent may be tempted to pressure the seller into accepting what would otherwise be unacceptable. Real estate agents use remarks such as “the market has softened” or “the market has spoken to us” to convince sellers that the real estate agent’s high estimate of value can no longer be trusted, and that now the seller must accept what the seller believes to be an unacceptably low offer.
For some years now, I have been arguing that real estate services should be provided on a fee-for-service basis.
I will explore replacing real estate sales commissions with a fee-for-service structure later in future articles.