The end of real estate profiteering?

This past weekend, big changes have been ushered in the way we buy real estate in the US. We won’t see the results right away, though. It will be very subtle and progressive. Until then, real-estate agents typically made their money through commissions tied to real estate’s sale price. 

For example, the agent who listed and sold a house and the agent who guided the buyer through the purchasing process would split a 6% commission equally. For a $1 million house that was $60,000. You didn’t need to be overly smart or educated to make these piles of money, thanks to the long proven principle of monopoly. Right, an awful lot of money for little or no work! 

Now, buyers who didn’t have to pay a commission to the agent who helped them purchase the house, may have to sign a contract so the agent gets paid for the service instead of getting their share from the buyer. They may not and deal directly with the selling agent instead. In theory, the changes are expected to make the process of buying and selling a home less expensive and allegedly more transparent. In my opinion, it will take some time for the market to find its footing.

Consider this, there’s a gross oversupply of real estate agents, with in my opinion 10% of them doing 90% of the business. This means most of them starve, while a tiny sliver prospers. What is likely to happen? Commission will significantly drop in percentage. 

Then, from percentage it may go to fees simply because if a million dollars home is $60,000 in commission today, a $10 million one is $600,000. Something is obviously wrong with that picture and will have to give in a big way. 

It may take a few years for the market to sort itself out, plus integrate and digest a flurry of new marketing / pricing ideas and innovations, along the lines of Airbnb or Uber, but the process will never be the same again and, hopefully, the consumer (sellers and buyers) will prevail, pocketing a healthy difference!