Estate Agents - Commission Mentality Explained

Published 26 August 09 12:43 PM | Peter Mericka 

OPINION
by Peter Mericka B.A., LL.B
Real Estate Lawyer
Qualified Practising Conveyancer Victoria
Director Lawyers Real Estate Pty Ltd

 

 

It would seem that real estate agents are the same, all around the world. The following anecdote appears on a real estate industry blog in the United States. What makes this anecdote particularly interesting is the author's final comment "not all sales have to be 'difficult' to makes the salesman deserving."

I have often wondered as to whether real estate agents genuinely believe that they are entitled to take a chunk of a client's property (usually 2 or 3% of it) as payment for the dubious services they offer. Really, a real estate agent doesn't do very much at all. It is the lawyer who does all of the "heavy lifting" in any real estate transaction, by carrying responsibility for the client's legal well-being, and often keeping the real estate agent out of trouble along the way.

The inability of the real estate agent to justify remuneration by way of commission is highlighted in situations where the vendor's property sells to the next-door neighbour shortly after the "For Sale" sign has been erected. I know of one "ethical" real estate agent in Melbourne who boasts that in such circumstances he charges only half of the normal commission. This translates to, "If I have done nothing whatsoever to bring about the sale I will not charge the vendor the full $15,000. It would be unethical for me to take any more than $7,500 for doing nothing."

So, how does a real estate agent justify to herself the taking of a massive and undeserved fee? In her blog posting titled "But He Didn't Do any Work - Why Should He Get The commission?" real estate agent Wendy Rulnick appears to argue that because some sales are "difficult", she is entitled to demand a high commission for sales that are "easy".

Here is a transcript of the anecdote as written by Rulnick:

My husband and I had to go shopping for a new television last weekend.  The old one was about to die - its channel guide was getting fuzzy and my eyesight is already "bat-like".   We researched our options online, found one we wanted, then set out for a reconnaissance mission to Sears, Best Buy and yes, Sam's, at my Hubby's insistence.

Right away, at our first store, Sear's, there was our new flatscreen- and it was a lot less expensive than the internet price! I got really excited.  The on-duty salesman, Lee,  came over and quietly introduced himself to ask if we needed any help.  My husband asked if it the t.v. had built-in speakers, and Lee said "Yes".  Hubby didn't give signals to talk further (being an engineer), so Lee said to call him if we needed more help.

My husband and I walked up and down the aisles but I already KNEW it was the t.v. we wanted (OK-- " I" wanted).   Hubby and I whispered ...."I really want it, let's get it now!" I said.  My husband agreed. 

I called Lee over and we said "We'll take it".  He said he would have to check their inventory (sigh).  Sadly, there were none in stock, but if we ordered it then, we could have it in three days.  Hubby and I looked at each other.  I said "Let's order it", but my husband wanted to finish our mission and go to the other stores.

Before we left, I asked the salesman, Lee, "Are you commission sales?"

" Yes" , he responded.

"Then I want you to get credit for the sale if we call or come back to order the t.v.  I am a salesperson, too, so I respect that."

Lee then filled out a customer-finder form so we could let any of the other Sears salespeople know we were "his" customers.

Hubby and I completed our research at the other stores.  Sears was the best price by far.  I sent Hubby to get the t.v. the next day.  "Make sure you give the on-duty salesperson Lee's card so he gets credit!"  I instructed.

"Why?" he asked innocently, being an engineer, "He didn't do any work. He answered one question."

"Honey", I said, " If someone called me up because they found a house, then grabbed me to write an offer, would I not deserve a commission?  Some deals are easy, some are hard.  That's just the way it is.  Lee might have killed himself with the previous three customers.  They might not have bought, or maybe they did not give his card so he didn't got credit when they did buy.  Yes, we were ‘easy', but not all sales have to be ‘difficult' to make the salesman deserving."

Using the "easy" sale to pay for the "difficult" sale

According to the real estate agent, commission is seen as a way of ironing out the peaks and troughs that occur in real estate sales, so that big rewards can be reaped for small effort. But the reality of real estate is that real estate agents do nothing much, and take almost no responsibility for what little they do.

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Filed under: Commission, fee-for-service

Comments

# Eric said on August 26, 2009 8:01 PM:

Your wrong about commission because agents work hard for there commision and a lot harder than legal eagles work thats for sure and I earn every cent of my commissions and all my clients are always happy to pay me for good service.

# reece said on August 26, 2009 8:29 PM:

@ eric

You would say that wouldnt you. And as for "agents work hard for there commision and a lot harder than legal eagles"  ..i doubt that a) You know every agent in australia and b) you know anything about the efforts required by "legal eagles".

# Peter Mericka said on August 26, 2009 9:02 PM:

Hi Eric,

I have seen Hocking Stuart Real Estate advertise on TV with the slogan "the hardest working agents", but they could never indicate what it was that they did to qualify as working hard.

As I recall it, the ad showed a real estate agent who was so hungry for a commission that he was conducting an auction, having struggled out of hospital, and while still attached to an intravenous drip.  The ad was a fizzer, probably because it implied a ridiculous level of desperation, rather than a professional concern for the interests of the client.

What does a real estate agent do to "work hard" really?

# Brett said on August 27, 2009 7:51 AM:

I am neither an agent or a lawyer but I do know one thing. It is a bit rich for any lawyer to deride another profession over their remuneration. Perhaps Real Estate agents should start charging in 6 minute billable units, as recommended to lawyers by the law institute.

# Peter Mericka said on August 27, 2009 9:50 AM:

Hi Brett,

This is not a matter of lawyers vs estate agents, but in order to dispose of this red herring I will agree that lawyers who charge on the basis of billable hours are a problem.

Your reference to estate agents as "professionals" leads to another element of the problem.  Real estate agents are NOT professionals, although they and the media they channel their clients' funds to present them as such.

Brett, you can undertake a short course at Swinburne TAFE a couple of evenings a week for a couple of months, and emerge fully qualified to call yourself a real estate "professional".  You will be entitled to provide "market appraisals", even though will have learnt absolutely nothing about valuing real estate, and you will be encouraged by your agency boss to call upon your limited knowledge to convince consumers that you know all about contract law, the Sale of Land Act, the Transfer of Land Act, the Property Law Act, the Legal Profession Act and all of the associated regulations.

As a new "estate agent's representative", you will do all of these things in order to look professional, when in fact you do not have the professional expertise to actually pull it off.  And when things go wrong, you will simply tell the distraught consumer, "It's a legal problem, talk to your lawyer".

Brett, there is more to being a professional than simply calling yourself a professional.

And how does someone with limited education, insufficient experience and no genuine qualifications charge for a service that offers plenty of sizzle, but very little steak?  Commission!

# Eric said on August 27, 2009 11:35 AM:

I can see your a legal eagle Reece and I can say I work harder than you because i am the one that has to make the sale happen and your lot spoil it by scaring the punters with legal jargen and crap and that is why it is better to use conveyancers anyway.

# Cameron Black said on August 27, 2009 11:48 AM:

Peter - if it were the case that you, or any qualified solicitor, actually completed most property conveyancing your arguement may have some validity. However as most conveyancing is completed by paralegals, who have even less formal training than the real estate agents you deride here, this is completely hypercritical.

I agree with some parts of your arguement, however are you intending to charge far less for legal transactions where you can use existing templates or precedents? So even though your quoted rate is per transaction, and you don't charge hourly, do you pass on these savings as they arise? I would doubt it. And yet you expect this of real estate agents.

The reality is that when a company works on a fixed price model, whether it is fixed commission rate, fixed service price or even a fixed product price, it is simply efficient and advantageous to charge per transaction in this way.

The real question you should have answered is this. Should the agent charge more for transactions in which their client is very difficult and / or  the sale is difficult? Using your argument the answer has to be yes, and yet we all know that this isn't going to happen.

# Peter Mericka said on August 27, 2009 12:12 PM:

Hi Cameron,

Unfortunately you’ve missed the point, but let me deal with what you have put.

It’s not a matter of who performs the particular task, but who carries responsibility for the carrying out of that task.  The ultimate example is the politician who is forced to resign when his or her staff does something improper.

Paralegals are staff members who are entrusted with the carrying out of tasks delegated to them by someone who carries responsibility for the correct performance of those tasks.  For example, I can instruct a paralegal to draft a Transfer of Land, but I must take ultimate responsibility for its correct drafting.  Thus, I ensure that correct procedures are in place to ensure that tasks are done exactly as I would do them in person, and then I check to ensure that they have been completed to my satisfaction.

Real estate agents have no special qualifications or skills, and so they do not carry responsibility whether they perform the tasks themselves or delegate them to their staff.  The most important skill for any estate agent to be successful is the ability to win listings.  A real estate agent who cannot convince vendors to sell with his or her agency is nothing, a nobody, a loser waiting to be sacked.  But convincing vendors to list with you is not a skill of value to consumers, and winning listings does not make you a professional – it just means you’re good at gaining clients.

Having gained the vendor as a client, what “work” does the real estate agent do that could be regarded as involving professional “skill’?  Placing advertisements?  Taking telephone calls?  What is it that the estate agent does that adds value to the vendor’s property?

Estate agent charge commission because the “services” they offer require no special expertise whatsoever, and because it’s impossible to justify exorbitant fees for a nothing service.

Cameron, the issue is not the use of a fixed fee model, the issue is the massive cost (i.e. a percentage of the vendor’s personal wealth) for a nothing service.

Are you able to provide even one example of “skill” that an estate agent can offer to a vendor?

# Karl said on August 27, 2009 1:58 PM:

Cameron you cannot even spell hypocritical, so it is no surprise that you do not understand what it means.  Obviously you are a real estate agent trying to defend something that is impossible to defend.

Hypocrisy Cameron is where you take someone to task about passing savings on to clients when you get a pay rise every time property prices rise and you charge your clients for displaying their property on the internet (when it costs you nothing), and you do not pass on any of the benefits that new technology have provided to real estate agents over the past 3 decades.

Hypocrisy thy name is real estate agent.

# Cameron Black said on August 27, 2009 3:33 PM:

Hi Peter,

I understand what you mean - I am a solicitor as well. But I don't agree with you. Real estate agents are professional sales people (the goods ones anyway) and that is a profession just like any other. They get paid commission just like pretty much every other salesperson in other industries as it provides some guarantee of performance (eg they don't get paid unless they makes sales).

Yes - the variance of skill and performance in the real estate sector is great; far greater than in law. However I am sure you will agree that there are many average solicitors practicing who could be a lot better at their job. CLE's certainly help and the introduction of this to the real estate industry will also improve knowledge and hopefully professionalism.

As to your comments Karl - very reflective of the general 'real estate bashing' mentality that helps no one. As to why their commission should increase as house prices increase, if you stopped for a moment to think you would realise the absurdity of this. If house prices increase a couple of % more than CPI, than they get a pay rise. In whatever profession you are in (and I hope it is an Post-Graduate Profession at that otherwise Peter will be critical of your claim to being a professional) I am sure you have sought and obtain a pay rise in recent times. Perhaps you were not deserving of this?

In terms of costs being reduced due to technology, funnily enough that is exactly what I do now - develop and sell technology to the property industry. So to answer your question, yes technology has reduced costs.... for vendors. I don't have statistics on this but I am sure that the average marketing expenditure by vendors for the sale of their home has dropped in the past 10 years due to the rise of the Internet. We see newspaper classified's dropping every day, all of which were vendor paid. Most real estate agencies pay for their subscriptions to the various real estate portals, and few pass these costs on. So technology has brought real savings to the consumer in this way.

# Peter Mericka said on August 27, 2009 3:50 PM:

Hi Cameron,

You fell at the first hurdle.  You make the broad statement, "Real Estate agents are professional sales people..."  You appear to accept the mythology surrounding the sale of real estate, that somehow a real estate agent makes a difference to the sale.

Cameron, you must explain HOW a real estate agent is a "professional" in the context of real estate sales, because my experience is that real estate sells itself, that no purchaser has ever been talked into buying a property they were not already interested in anyway, and that negotiating the final price and conditions at the closing stage is simply a matter of facilitating, rather than selling (and something at which the lawyer is far and away the expert).

At the second hurdle you ended up in the mud when you suggested that estate agents are paid on performance, which implies that the sale is the result of the estate agent's involvement.  I am sure you understand the fallacy of post hoc ergo propter hoc.

Cameron, as for your being a lawyer, I simply don't believe you.  If you were truly a lawyer you would not be presenting such flawed arguments.

# George Rousos said on August 27, 2009 5:16 PM:

Lets look at this from another angle.

An agent cannot act honestly, fairly and professionally with all parties in a transaction, if there is a lack of knowledge and understanding towards the laws of the day.

A failure to comply with the requirements of the statute always leads to a serious consequence of unprofessional conduct.

One of the biggest complaints received by the NSW Office Of Fair Trading last year by consumers was to do with real estate agents not having a knowledge and understanding of the Property Stock & Business Agents Act and the regulations under the Act and other relevant laws.

This being Rule 1 of the Rules of Conduct, prescribed under the Property Stock & Business Agents Regulations 2003.

# Cameron said on August 27, 2009 5:46 PM:

Peter

I actually thought we were having a genuine discussion on the topic. After you rather rude response I have now taken the time to visit your own website and can see why you are pushing this angle. Obviously you have no geniune interest in discussing this as to agree to anything I have suggested would go against your whole busines model.

Your conduct here demonstrates to all your professionalism. I think the quoting of latin is actually hilarious. The last bastion of the intellectually challenged (especially lawyers!).

For the record - I have a BCOM and LLB from Bond University, graduated in 1993, and was admitted as a solicitor to the Supreme Court of Qld in January 1996. You can check the roll if you like!

# Peter Mericka said on August 27, 2009 6:01 PM:

Hi Cameron,

OK, I accept that you're a lawyer.  What I don't accept is your sycophantic pandering to the real estate industry.

From your experience as a property lawyer, does the responsibility carried by the real estate agent compare in any way to the responsibilities carried by the lawyer?  What "skills" do you attribute to the real estate agent which justify a fee of $10,000 in a transaction where the lawyer charges a fee of only $770?

# Karl said on August 27, 2009 6:06 PM:

Cameron if you are such a gun solicitor how come you are selling software to real estate agents instead of protecting people from them?  What was that word again? Oh yes HYPOCRISY!!!!!!!

# Real Estate in Christ Church said on August 27, 2009 11:19 PM:

Real estate agents worked hard for their commission. Not all agents are the same.

# George Rousos said on August 28, 2009 10:34 AM:

Hi Real Estate in Christ Church,

When you say real estate agents work hard for their commission. Are you saying they comply with the law aswell ??

A Manly real estate agent who cheated an elderly client out of $1 million profit has been banned from operating as a real estate agent for a decade.

After reading the case, you could say he was working hard for his commission, but also working hard in ripping off the public and continually breaking the law.

http://www.fairtrading.nsw.gov.au/About_us/News_and_events/Media_releases/2009_media_releases/20090808_real_estate_agent_disqualified.html

# Peter Mericka said on August 28, 2009 11:03 AM:

To all real estate agents,

As you all know, I am scathingly critical of the way real estate agents operate.  Basically, my beef is that unqualified salespeople can enter the industry with a "salesperson" mentality, then pretend to valuer, conveyancer and lawyer to both parties in a sale transaction in order win a massive and undeserved commission.  That's it, in a nutshell.

My question is this.  What if I were to present you with a model that would allow you all to operate ethically, fairly, transparently, and entirely within the law on a fixed fee basis.  It would mean abandoning the deceit and deception so commonly used in the industry, but the reward would be a level playing field on which only the truly ethical and genuinely consumer oriented professional could compete.

What do you all think of such a proposal?

# Eric said on August 28, 2009 3:16 PM:

Show us your proposal and we will see if you know what your talking about.

# Peter Mericka said on August 29, 2009 3:35 PM:

An explanation of my proposal has now been posted: "The Ultimate Real Estate Sales Office"

# Bart said on September 1, 2009 8:53 PM:

Why would largely under-educated confidence tricksters in a suit accept a proposal that would require them to display professional ethics, take a pay cut and work harder than they have to date? Many would even struggle to understand what a conflict of interest really is. The real estate industry is in need of a serious shake-up and it is high time that the legal profession stood up for itself.

Love your work Peter.

# Peter Mericka said on September 1, 2009 9:36 PM:

Hi Bart,

See my latest posting "The Ultimate Real Estate Sales Office".  This concept allows real estate agencies to become law firms, and to operate within the management frameworks and regulations established pursuant to the Legal Profession Act 2006.

I have done it, it works, and it's the way of the future.

# NSW Agent said on September 20, 2009 3:18 AM:

Hi Peter,

What would constitute a "professional" in your eyes?

From what you are saying you believe both marketers & sales people would not be classified as such.

Does being "professional" mean that you have to have a degree or  X years of training?

# Jules JP said on September 22, 2009 6:59 PM:

I agree that an agent is needed to do some of the leg work (that would otherwise need to be done by the legals) in addition to what they already do. Let's not all forget who puts the contract for sale together and sends to the agent, calculates the adjustments, corresponds with lenders & attends settlement etc. Also, legals are basically involved on a daily/weekly basis for minimum 6 weeks? Secondly, I believe the internet is not being used by Real Estate Agents to it's full potential - mandatory information, price range etc. A review of current R/E procedures is in need.

# Peter Mericka said on September 22, 2009 7:43 PM:

Hi NSW Agent,

It's not a matter of holding a qualification or having been trained in a particular way that makes a person "professional".  A real estate professional is a person who has entered the industry in order to provide services of genuine value in return for a fair and equitable remuneration.

Real estate agents do not enter the industry to provide a genuine service, nor do they make any attempt to match the remuneration they receive to the service they actually provide.

People who enter the industry as estate agents do so with dollar signs in their eyes, not a passion for consumer rights in their hearts.

For your part NSW Agent, did you enter the industry in order to protect consumers, to provide professional guidance and to reduce costs to consumers through genuine competition?  Or did you come in chasing the big bucks for little effort?

# Peter Mericka said on September 22, 2009 7:48 PM:

Hi Jules JP,

You will have to define "leg work", as I see much of what real estate agents do as unnecessary overservicing the purpose of which is to make it appear that the real estate agent is actually doing something in return for the massive commission paid by the vendor.

I disagree that a review of current real estate procedures is necessary.  Lawyers should be doing more to protect consumers from predators, rather than waiting for lame-duck regulators to fill the gap.

# Craig said on September 26, 2009 1:21 PM:

Opinion

It’s great to see someone so passionate about the Real Estate Agents.

Why are their more Lawyers and Accountants jailed than Real Estate Agents?

How can Lawyers justify the expensive fees they charge when in reality most of the forms used in legal work are pre-prepared and only require someone to fill in the blanks? A lot of the court room paperwork is copy and paste with a few words changed to cater for the individuals use. Yet the client is charged in most cases thousands of dollars, why is this?

With the power of the internet the time spent on research is greatly reduced however the charge out fees is not, why is this?

I note you are very good at pocking other professions in the eye but if you had a real concern for the consumer then I believe that you would be exposing the abuse of legal process and gamesmanship practised by lawyers every day. If people like you had a real concern for the consumer then they would offer their services on a “no win no fee bases” which would eliminate the blood sucking fees vampires from the profession. This would also slow down the use of legal process where the practitioner knows full well it is unlikely to help the consumer/client in reality, yet lawyers regularly take clients down the slippery process slope. This brings into question the true value of the self protection mechanism and frequent use of the word “Opinion.” If the legal profession was authentic and transparent in its dealings with the consumer/client then why don’t they offer a guarantee or warrantee that the process or advice they give or recommend is sound and is more than likely to get the desired result for the consumer/client? Money back guarantee should be offered after all your profession is apparently so highly skilled.  

In my opinion the excessive fees or hourly rate charges in excess of $250 per hour is questionable.  

I believe Transparency Peter Mericka B.A., LL.B should start in your backyard.

# Peter Mericka said on September 26, 2009 1:38 PM:

Hi Craig,

It's good to see a real estate agent who is into transparency.

It is in the interests of transparency that I always disclose my identity when I criticise others, and I look forward to your doing the same.

Of course, once you have identified yourself you will become accountable for what you say.  On the other hand, if you don't identify yourself you will appear as dishonest as the others who like to snipe from the shadows.

Do you really believe in transparency Craig?

# Hector said on October 17, 2009 6:15 PM:

Guess Craig is not really into transparenc y after all!!!  You really owned him on that one!!! Ha Ha Ha!!

# William O'Rourke said on October 22, 2009 5:51 PM:

Hi Peter, I am the principal Licensee of Mutual Equity Real Estate located in South east Queensland at the foot of the Toowoomba Range. I believe some of the comments you make have merit but please don't tar all agents with the same brush. At Mutual Equity we came into the industry as a breath of fresh air and to be totally transparent to both vendors and buyers. We do not charge anything but commission and offer an advisory service to all clients both buyers and sellers. Our ideals are based on letting people have time to think with no pressure or hardline sales. We also ecourage our clients to open list so they can see just which agent is working for them and in their best interests as the PAMD Act states. As far as professional services are concerned if you work honestly on both behalves in trying to obtain maximum price for the vendors and a happy buyer at the end of the process this is something that not all people can do. It is called negotiation and not every one can attest to this let alone to do it honestly and ethically. You would only have to read our testimonials and speak with our clients to see that we are not just your high pressure salesperson and we are in fact an agency that does deserve a commission at the end of the day. So with all due respect please don,t pigeon hole us all into the same category as there are stil some genuine people in the industry.

# Peter Mericka said on October 22, 2009 6:36 PM:

Hi William,

Excuse me while I put my bucket down and wipe my mouth.

William, please describe for me an example of your having worked on behalf of both parties without there being a conflict of interests.

While you're at it, please explain why you charge consumers a whopping commission rather than using a more honest fee-for-service model.

Finally, please read SOLD by Brendan Gullifer, and tell me with a straight face that the "genuine people in the industry" outnumber the crooks.

# Christina said on October 29, 2009 11:14 PM:

I'm a lawyer, I worked as a conveyancing paralegal throughout uni, I have bought two houses and sold one (all through agents).

From what I have seen there is very little work involved in a real estate agents role (for which they earn $15,000+ commission) over and the role of a solicitor doing conveyancing (for which they are paid $1,000+).

With regards to Craig's comments - the efficiency gained in the use of standardised forms, templates and internet research is directly passed through to the client.  The hourly rate remains the same however the number of hours taken to complete a task is greatly reduced.

A lot of court room paperwork is copy and paste, true.  The drafting of the rest can unequivocally make or break a case.

Open the yellow pages and you will find stacks of 'no win, no fee' lawyers.  I personally would never work for no win, no fee.  A lawyer will (generally) always do their very best to present your case as favorably as possible, but its not the lawyers fault if the facts (which have nothing to do with the lawyer, and everything to do with the client) are stacked against you.

The legal profession cannot offer a guarantee their advice is sound because the law is by its nature ambiguous.  Have a look at some High Court judgments - its a very rare occasion when each and every one of the justices agree on the same legal outcome.  The winner in the case is decided by majority (often 4-3) and even where the justices agree on the outcome they often disagree on the correct legal analysis to reach it.  At any rate, lawyers have professional indemnity insurance which is a huge value add to legal advice.

I'd love to see real estate agents tracking all time spent on a sale and then calculating through their hourly rate.

# Peter Mericka said on October 30, 2009 8:49 AM:

Hi Christina,

The only person in a real estate transaction who is indispensible is the lawyer.

That's why the Ultimate Real Estate Sales Office has no real estate agent involvement, takes the sale transaction from first listing to settlement, and charges a simple fixed fee of $4,400.

It's an example of the lawyer saving the consumer from the real estate agent, and saving them money.

PS: Did you see "A Current Affair" last night, where they looked at how real estate agents are using the fine print in the Exclusive Sale Authority to demand a commission where the vendor's property was not sold - very grubby.

# joe said on November 1, 2009 12:51 AM:

can agents claim their commission if he gets you the price on the authority form . and you decide not to go the sale with out signing any cotract

# Peter Mericka said on November 4, 2009 11:15 AM:

Hi Joe,

Yes, this is one of the sneaky provisions hidden away in the fineprint of the real estate agent's Exclusive Sale Authority.

The Exclusive Sale Authority contains its own definition of "Sold" and this definition includes the situation you have described.