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It has been interesting to observe how the mainstream media has covered the recent $418-million settlement involving the National Association of Realtors (NAR). In addition to the monetary settlement (which can be paid out over a four-year period), NAR agreed to end its rule requiring the inclusion in the MLS of compensation for brokers representing buyers.
It should be obvious by now that there is little understanding of why that rule existed and how it benefitted sellers to incentivize brokers outside the listing agent’s office to show and sell their homes.
ing or showing agents on clients who never sell or never buy.
It’s not a unique concept. Cruise lines and resorts, among others, offer a commission to travel agents to get them to promote their cruises and resorts, etc. Car dealers pay auto brokers who produce a buyer who otherwise wouldn’t visit their showrooms. (That’s how I bought my 2012 Chevy Volt back when I needed help finding that brand new model. I couldn't have found the one dealer who had one in transit to Aurora without my broker’s help.)
Similarly, offering a commission to other members of the MLS is how listing agents maximize the exposure of their sellers’ homes to the buying public. That exposure is compounded by the fact that every brokerage and consumer-facing website gets its listings from the MLS.
The public and the media have long quoted 6% as the “standard” real estate commission — as have some brokerages offering 1% listing commissions, with small print saying “plus co-op commission to buyer’s agent.”
That error continues and is compounded now with the media stating that 3% is the “standard” co-op commission paid by sellers to the agents representing buyers.
Worse, some media have been reporting that NAR mandates the infamous 6% commission, which is not at all true. Neither was a 3% co-op commission ever mandated, merely that some offer (as low as zero) had to be included in every MLS listing.
A reader sent me an analysis ordered by one of the Federal Reserve branches, which really got me laughing. A page from that analysis is reproduced at right. The purpose of the study was to calculate the reduction in agent earnings and the gain in social benefit if the “standard” 6%/3% system were modified. Not factored in at all was the time spent by list-
Over the past two decades this column has appeared in the Denver Post, and during that time I’ve written about every conceivable topic related to real estate, You can search that archive, listed by headline and downloadable with a single click at www.JimSmithColumns.com
My July 20, 2023, “Real Estate Today” column carried the headline, “Unlike Most Professionals, Real Estate Agents Work for Free Most of the Time.” In it I made the following observation: “As it is, the average member of the National Association of Realtors earns less than $50,000 in gross commission income per year — before accounting for car, phone, MLS fees, Realtor dues, computer hardware & software, E&O insurance, and more.”
Business doesn’t come to most agents sitting in their office. They have to make themselves known, publish community newsletters in their “geographic farm,” hold open houses that may generate no sale or new clients. Myself, instead of prospecting, I spend an equivalent percentage of my time writing this column, which I then pay to have published in 23 weekly newspapers and the Denver Post. As my favorite quote at the bottom of each ad says, I “concentrate on giving and let the getting take care of itself.”
Successful real estate agents find other ways to give to their communities and thereby earn their patronage.
Yes, on occasion I will get an easy payday — a buyer who comes to me with a specific home to buy, we make an offer and close the transaction. Bingo! But that only compensates for the great amount of work done serving other buyers and other sellers plus those members of the public who ask for advice or a home valuation and never give me the opportunity to earn a pay check. I don’t resent that at all — it’s part of my giving, knowing I will be compensated in other ways. It actually makes me happy. (Call me anytime!)
Too many people enter our profession under the same misconception that I have described above, that real estate is an easy career to earn lots of money. They watch TV shows about million-dollar
listings or they see me driving my Tesla and other agents driving their BMWs and Mercedes. But we are the exception.
The public’s general impression is that real estate is a high-paying career. Keep in mind that NAR membership is optional, so agents who are willing to pay roughly $500 every year to be a NAR member are most likely the ones who take the business seriously, although many members work part-time in real estate because they can’t make ends meet solely from their commission income.
The most recent survey of NAR members included the following facts regarding median gross compensation and expenses (emphasis in original:
Realtors with 16 years or more experience had a median gross income of $80,700 — down from $85,000 in 2021 — compared to Realtors with 2 years or less experience that had a median gross income of $9,600 — an increase from $8,800 in 2021.
The largest expense category for most Realtors was vehicle expenses, which [averaged] $1,710.
I have estimated that the 80/20 rule applies as much to real estate agents as it does to other professions, although I think it’s closer to 90/10. Namely, 10% of us earn 90% of the money.
(Golden Real Estate’s broker associates and I are in the 10% because we work hard and smart.)
Too often, new agents spend a year
spinning their wheels, making cold calls and spending $10,000 or more on tools of the trade only to end the year with one or no transaction, so they give up, having lost that investment and wasted a year of their professional life. It’s really sad to watch.
It takes time to get established in the real estate profession. My broker associates and I have passed that tipping point and will renew our licenses when they expire, unlike the majority of new agents.
Some real estate agents are quite upset about the part of the settlement which removes buyer agent compensation from MLS listings beginning in mid-July, assuming the court approves the settlement.
A Wall Street Journal article posted on March 20th describes how buyers are getting off the fence before the new rules take effect in July requiring them to pay their own agent. That makes sense to me; it also means that now is a good time for potential sellers to get off the fence and list their homes for sale.
Not having co-op commissions on the MLS will require agents to talk to each other before submitting offers, to clarify whether the seller is offering compensation to the buyer’s agent. I discuss that and the other effects of the NRA settlement in the posting of this article at http://RealEstateToday.substack.com, where you can also ask me questions.
$1,250,000
This fantastic 3-bedroom, 2-bath, 2,350sq.-ft. home at 820 Racquet Lane is at the end of a quiet cul-de-sac in east Boulder’s Meadow Glen neighborhood, backing to a community pond and Boulder’s outstanding biking trail network. Foothills Parkway, Baseline Road and Hwy 36 are nearby. Inside are hardwood floors throughout, a beautiful staircase with custom wrought iron railing, and lots of sunlight thanks to the open floor plan. There are two bedrooms with walk-in closets on the main level while the primary bedroom is located on the 2nd floor with a huge walk-in closet and ensuite bathroom. The kitchen features custom cherry cabinets, granite counters and a topnotch Viking refrigerator and range. There are two living rooms (main floor and upper floor) and a dedicated home office. Outside is a large and private fenced patio. The 2car garage also has a spacious attic for extra storage. Get more details and take a narrated video tour at www.GRElistings.com, then call listing agent Chuck Brown at 303885-7855 to request a private showing.
Jim Smith
Broker/Owner, 303-525-1851
Jim@GoldenRealEstate.com
1214 Washington Ave., Golden 80401
Broker Associates:
JIM SWANSON, 303-929-2727
CHUCK BROWN, 303-885-7855
DAVID DLUGASCH, 303-908-4835
GREG KRAFT, 720-353-1922
AUSTIN POTTORFF, 970-281-9071
KATHY JONKE, 303-990-7428
“Concentrate on giving and the getting will take care of itself.” —Anonymous
Spud, the chi, is not a huge fan of the snow, but does enjoy a little walkabout when the weather is fair. He needs some exercise to help him get back in shape (and no, not a round shape). He is a happy little guy looking for a home. (Must have a plush dog bed for King Spud.)
him out and all of our
Palm Sunday March 24 | 9:00 am
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Easter Sunday March 31
Sunrise Service | 6:30 am
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106 Rosalie Road, Bailey | 303-838-2161
THURSDAY
March 28, 2024
Deer Park United Methodist Church (UMC) is a small but vibrant Christian church, located just south of Pine Junction and just o Route 285 on 966 Rimrock Road in Bailey. We would love to have you join us on Easter Sunday, March 31, at 10 AM. You will nd that we are a warm and welcoming community.
At Deer Park UMC, we put our Christian faith into action. We open our hearts, minds, and doors to the experience of giving to and receiving from others, as we seek the Kingdom of God, where love reigns supreme!
We have a rare fully remolded property with rare fully permitted Additional Dwelling Unit (ADU) near the west highlights. The property is 95% completed to allow for customization. The property has an amazing open space kitchen with a large master bed room, large walk in closet and wow en-suite bathroom.
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We offer partial owner financing with a 720 FICO score, or higher, and at least $25K in savings IE Retirement Plan. The home has solar so there will limited power bills and for the young buyer we are offering a 2-1 buydown.
Any buyer who does not take the 2-1 buydown and does give a full price offer, can instead get a custom package for $20,000.00. The upgrades could include and of these: Private garden, class 4 roof, custom front porch, hottub, man cave in the garage or custom tile and paint throughout the home, RV parking or off street parking for the ADU.
Come check out our open houses which are 1) Happy Hour Open Houses Fridays 4-6PM and every Sat and Sunday in March from 10AM to 2PM. 4360 Marshall St, Wheat Ridge CO 80033.
alandavis@levelengineering.com
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