Real Estate Commission Analysis Seriously Flawed

Over at the Inman Blog they wrote a post about the new Department of Justice website that addresses their issues with competition in the real estate industry.  It shows a chart that illustrates the increase in commissions per transaction since 1998.

There are three seriously flawed assumptions that are made in their calculations.  First, they state that commissions have remained "relatively flat" during the decade at between 5% and 5.5%.  Did they start out at 5% and increase to 5.5% or did they start at 5.5% and drop to 5%?  A 10% decrease in the average commission rate is not "relatively flat".  I am sure that if anyone was told their salary was going to decrease 10% they would agree.

The second flaw is asssuming that "broker costs" will affect commissions.  As any agent knows, any and all cost increases that brokers incur will be passed down to the real estate agent.  It is the sharp increases in agent expenses that will affect the commissions that are charged to the home seller because it is the agent that negotiates the commission rate.  Brokers have significantly increased the desk fees and cap rates that they charge their agents.  Agents are also the ones that have to pay higher gas fees to drive clients around, higher insurance fees, etc.  All of these are taken into consideration when the agent, not the broker, negotiates the commission.

The last flaw is the assumption that there are the same number of transactions per agent over the last 10 years.  This is where the true "lack of competition" argument falls flat on its face.  The low barrier to entry and the continuous drive by brokers to hire everyone and anyone willing to sell a house to their family members and circle of friends could never be interpreted as anti-competitive by anyone with an understanding of the real estate industry.

Comments

[Frank Borges LL0SA- Broker Franklyrealty.com]

I also wish they would break down the buyer agent and the listing agent sides.

Is that 5% supposed to be 3% to the buyer agent and 2% to the listing agent or 50/50?

And are they counting rebates? If the "average" is 5% in their example, and in one deal the agents give 1% back, is it booked as 4% or as 5% commission?

It is really easy to manipulate the numbers to try and make a point.

Frank