Is the 6 Percent Real Estate Commission Outdated?

The Internet is changing the real estate business, continually drawing into question the current commission regime: typically 6 percent of the average home's sale price. With buyers doing a lot of the legwork, seeking out properties and neighborhood stats online, this is leading many to question whether that $18,000 chunk of change (6 percent of the average $300,000 home) is a worthwhile investment.

Why the 6 Percent, Anyway?

Back in the day (the 40s-50s), the National Association of Realtors (NAR) required its members to set commissions at a certain level, either working full-time, or holding enough customers to earn a living in order to join and get access to the MLS.

A 1950s Supreme Court ruling deemed these 'certain rates' illegal. So the NAR changed them to 'suggested' rates. How it originally became 6 percent remains unknown. But since federal tracking of rates began in 1991, it has fallen from 6.1 percent to 5.18 percent in 2014.

Should Your Rates Be Dropping?

Real estate selling services are typically bundled, sometimes requiring consumers to opt-in for options they don't need. On the...

• Seller's Side - Marketing, advertising, open houses, and price negotiation.
• Buyer's Side - Listings, showings, market research/knowledge, navigating the purchase process.

As consumers seek to 'unbundle' these services in the increasingly DIY Internet world, they are turning to services such as Redfin and ListingDoor, asking for/actively seeking agents outside of the traditional commission structure.

Rate Reductions and À La Carte Services

With this 'get what you pay for' mentality in mind, consumers and agents are looking for rate reductions in exchange for a reduction in services rendered, as a $300,000 home doesn't necessarily cost twice what a $150,000 home does to sell (though it nets double the commission). As the market changes and grows increasingly competitive, such tactics may be worth a second look.

To view the original article, visit the Properties Online blog.