At the same commission rate, real estate agents who sell an $800,000 house receive eight times the compensation of those who sell a $100,000 home. But does it take eight times the effort to sell the more expensive property?
Does it cost agents more to market a higher-priced home? Is it more difficult to find buyers who can afford such a place? Is the sales process more time-consuming? Is there more paperwork involved? More rules and regulations that must be followed?
I ask because a new report from the Consumer Federation of America questions the relationship between home prices and commissions.
Intuitively, you’d think that the commission charged on higher-priced houses would be lower, if only because agents would earn much more money. At 6 percent in the above example, the agent selling the $800,000 house would earn $48,000, while the one selling the $100,000 house would make just $6,000.
But that’s not always the case, according to the CFA, which found “no consistent relationship” between prices and commission rates.
No Consistent National Trend
Previous research found a “tendency” for commission rates to slide as home prices increase. But in the CFA’s study of the rates charged in 17,800 recent sales, the sellers of more expensive houses in eight cities were charged higher rates, while those in eight other markets paid lower commissions. In 15 other places, rates were either uniform or fairly similar across the price spectrum.
Former Department of Housing and Urban Development official John Weicher once said commission rates are “generally expected” to vary inversely with housing prices, “on the basis that the effort needed to sell a home is not proportional to the price of the house.”
But that was in 2006. The market has changed mightily since then. Buyers used to hop in an agent’s car to find a home that fit their needs. Now, they do the lion’s share of their search online – so ostensibly, agents do less work.
Some agents argue they must work harder, and at a greater cost, to sell a higher-priced property. Expensive places tend to be larger, requiring more inspections, property clarifications and “making sure the buyer and seller are happy,” Northern Virginia broker John Marcario told the CFA.
But others disagree.
“I don’t think the cost to sell a home [here] in Massachusetts for $100,000 vs. $4 million is any different,” said 40-year realty veteran Tom Wemett of Homebuyer Advisors. “What is different is the profit.”
“Generally speaking, an $800,000 house is no more work than a $300,000 house,” added Derek Eisenberg of the Continental Real Estate Group in New Jersey.
Different Markets Impact Workload
There are market conditions to consider, of course. In extremely high-priced places like California, where $800,000 houses “sell like popcorn,” it’s likely more difficult to sell a $100,000 house, consultant Marilyn Wilson of the WAV Group told me.
That may be so. The CFA found that in Bakersfield, California, commissions on two-thirds of the houses that sold at $450,000 or above were higher than on those that sold for $300,000 or less. Yet in San Diego, commission rates hardly varied, no matter the price.
Another anomaly might be whether it’s a buyer’s or seller’s market. Danetha Doe, an economist with Clever Real Estate, told the CFA that when the market favors buyers, “it takes more effort” to sell a pricier place.
Another consideration is the type of property. According to Eisenberg, more work is involved in the sale of condominiums, houses governed by homeowners’ associations and houses where the owner is in financial distress. Other factors are the property’s condition and location.
What Some Agents Say
All that said, I threw the question out to some agents with whom I am in regular contact.
“The amount of work required to sell a home is not distinguished by price,” said Robert Goldman of Michael Saunders & Co. in Venice, Florida, but rather by “five factors: condition, location, staging, marketing and price.”
Chris Carter of Waterfront Realty in Naples, Florida, said he expends the same amount of effort, no matter the price. But he points out that when their cut is larger, some agents are likely to spend more on marketing materials: better photos, maybe including drone shots; full-color printed postcards; and single-property websites. Then again, when the market is hot enough, agents may do little more than list the house and wait for offers.
Lisa Abrams of Berkshire Hathaway, who is licensed in Florida and in the D.C. area, said that her effort doesn’t change with the price point, but that she does find it more difficult to sell cheaper houses.
“Typically,” she told me, “buyers in the lower price points tend to have financing issues and down payment issues.”
Carter said the same: Buyers of expensive properties tend to be “more sophisticated and experienced” and “don’t require as much hand-holding.”
Charles Hunt of the New York-based Hunt Real Estate Group agreed, adding, “Selling a less expensive home can have more steps due to financing and inspection contingencies that may not exist on a more expensive property.”
Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at email@example.com.