The Truth About Real Estate Commission Rates

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The Truth About Real Estate Commission Rates

Real Estate Commission Rates

I talk to a lot of people over the course of a week as a real estate agent and most conversations eventually get to the subject of real estate commission rates.  Bring the subject up in a room full of agents and unless you support the prevailing wisdom of charging the highest commission possible, you will be considered an outcast by many.

Compared to the rest of the world, real estate commission rates in the US are extremely high.  Overall commission in the US averages around 5.5% and here in the Upstate it’s quite common to see a 6% – 7% commission rate.  Then to add insult to injury, some agents tack on an Administrative Fee as high as $600.

So what’s the commission rate in other countries?  Let’s take a look.  In Germany it averages around 4%, Canada 3%, Australia and Hong Kong 2%, England, Ireland and Sweden 1.5%.  My significant other is from England and she was flabbergasted when she learned how much is charged here in the US.

Why the big difference?  The good news is that real estate agents have some of the highest standards of representation in the world, and that costs money.  Thirty years ago before the advent of the internet and increased productivity due to today’s technology, I could better understand the higher commission rates.  But not todayreal estate commission rates.  Real estate commission rates have come down all over world due to huge increases in agent inefficiencies, but not here.

Unfortunately in today’s real estate office business model, brokerages have become so bloated over the years that even the slightest downward pressure in real estate commission rates jeopardizes their ability to continue as a business.  A half percent decline can mean the difference between solvency and bankruptcy.

Fortunately there are newer real estate models out there that are built with today’s technology that cater to today’s savvy homeowners.  Models that provide different levels of service depending upon the clients needs.  Models that pass on to the clients the savings that higher productivity brings.  Models that serve the client first and not a bloated real estate office.