The Nonsensical Logic Of Real Estate Commissions

Real estate commissions remain a perplexing puzzle.  We have written previously asking why this is the case.  

What your typical agent gets paid continues to increase.  The base on which agents get paid (house prices) continues to rise as shown in the House Price Index graph to the right.

A commission based on the value of the home makes no sense to anyone except the real estate agent.  It bears no relationship to the:

  • Costs of providing the service (see CPI graph to the right)
  • Value added
  • Experience and skills of the agent
  • Time taken and effort required to sell

House prices have increased dramatically, but what the agent is doing has not changed.  In fact because of buyer demand you can argue they are doing less – they are certainly spending less time doing it.  The median time taken to sell a home has dropped during the same period (from REINZ median days to sell has declined from 39 in June 2014 to 30 in March 2016).

The conundrum stubbornly remains.  

Why are real estate agents remunerated this way? Because its the way it has always been and there has been no real pressure on agents to change.  Sellers do have an advantage currently though, with less property coming to market.  Agents are desperate for new listings, so negotiate what you have to pay.

Better yet give us a call!

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