We need to face it. When it comes to real estate agents, some key questions are being overlooked.

What is a real agent truly worth? How much should they actually cost you? Is their commission too high or too low?

Many start the conversation around real estate agents through this lens of commission. When asked, many agents will reply “Yes, I’m worth my commission.” However, we counter that with “Great, but how much is that? How do you quantify it?” Often, agents respond that their commission is determined by the value of the house.

This begs the question. Is an agent’s worth, then, dependent on the value of the home, not on the value of the service they as an agent provide?

Typical Commission Structure

We can make this more tangible.

Imagine you have an agent who sold twenty houses last year which were all listed at different price points. One may have been priced at $1.5 million, one at $500,000, and a third at $300,000. Out of all the houses a particular agent sold, look for the home with the lowest price point. If this was a $250,000 house, with a commission rate of 3%, the agent would have earned $7,500.

This home sale which earned the agent $7,500 effectively establishes the basis, the lowest rate, for which the agent was willing to work in the previous year. If their commission is based on the selling point of the home, then all of the remaining homes yielded a higher commission for the agent. 

The Overlooked Problem

Now, if the agent selling the home at a higher price point (and thus earning a larger commission) can articulate the enhanced services they’ll offer and the larger amount of time this will consume compared to the lower priced homes, then this situation is very understandable. They should be paid more for such a sale. However, if the services are the exact same, it doesn’t make sense for the real estate agent to charge a higher price for the same service.

Your Tangible Solution

What does this mean for you? First, you can start by more fully understanding what you’re paying the agent to accomplish. Are they charging you based on their competence and the services provided or solely on the price of the home, potentially at a rate much higher than their base point shown by their sales record?

Practically, you can determine this by asking the agent about the houses they sold last year, finding the house with the lowest price, running their commission rate, and then asking questions. Ask what additional services they will be providing to earn the higher sum. If they have answers, great! We love paying agents their due. If not, you are protecting yourself from paying essentially a much larger tip than necessary. Why should you pay more, just because you have a bigger house?

Our Scout Difference

We hope this insider information saves you a substantial amount of money. We want it to equip you to receive a fair fee from the service agents provide by giving you the tools to run a price match based on their sales record. We’re here, looking out for you. 

Welcome to the Scout difference.

What if we told you some people are making $661 per hour, but it wasn’t who you thought? Well, turns out it’s true. Meet the real estate agency.

It all adds up

In 2019, 5,340,000 real estate transactions took place. Now, since a buyer and a seller are on either side of the transaction, this should be doubled to reach a little over 10 million home transactions occurring.

For these 10 million home transactions, approximately 2 million real estate agents were involved. These agents were selling homes that, according to the National Association of Realtors, were selling in the American market for an average value of $385,000. 

These agents typically charge 5% – 6%. On average, if an agent charged 5.5%, that would mean sellers paid out $105 billion. 

Can you imagine the real estate community making $105 billion from sellers? That’s a huge amount of money. In fact, it’s one of the largest asset classes in the country, comprising 13% of America’s GDP.

It’s driven by people

We can break this down more practically. How much do agents, themselves, actually make per hour from such transactions?

Nationwide, the average agent makes approximately $42,000 a year. There’s approximately 10 million transactions from about 2 million agents, so the average agent closes about 5.5 homes a year. That means that an average agent isn’t even selling a house every other month. The National Association of Realtors said that real estate agents work an average of 16 hours per client. They are averaging working 1.75 hours per week.

Can you imagine working 1.75 hours per week? Of course, there’s much networking, business development, and more not counted in these hours. But, in a sense, if you’re the seller, you’re paying for all of that.

It impacts revenue

For the sellers, based on the average sales price and how much agents make, the math works out. If you’re selling your home on average for $385,000, you’re actually paying $661 an hour. 

This is why it’s so shocking. When you have an attorney that goes to law school for four years or a surgeon who goes to school for six to eight years, either might make $350 or $400 an hour. It took them years to get that highly paid position. If you have this in perspective, maybe you wouldn’t tell your kid to be a surgeon or attorney. You’re going to have to go to school for years for that, and they’re likely going to make way less than a real estate agent.

It matters to you

But what does this mean in the end? 

Yes, if you’re a real estate agent, you can get your license in two weeks, and you’re going to get paid somewhere around $661 an hour. But, maybe that’s not right. 

At Scout, we very clearly understand the impact to the seller. And we have a model that is starting to bring things in line. If you’re looking for better solutions, we have just that.

If you had to guess, how much would you think was paid out in real estate commissions nationwide last year alone?

Over $105 billion.

How? With over 5,340,000 homes a year sold at an average purchase price of $385,000, real estate agents make around $100 billion dollars in commission. Now, having worked in the industry for 18 years, I love real estate agents. I love this industry. I believe we’re worth what we make. However, when I see $100 billion dollars, I think this represents something: someone’s college fund, a retirement plan, a down payment. And this commission seems a little unbelievable.

How did we get here?

Technology has driven down costs and made things faster and efficient. As agents, we’ve had the benefit of technological advances. However, there’s not a clear pass down for consumers. When almost any other industry experiences such technological advances, competition ensues and the clients, in a sense, pay less and get more. 

For example, I used to go to camp, get a long distance card from my mom, and have to be aware of the minutes I’m paying to use. Now, I have a cell phone and pay for an unlimited plan with email, texts, and more. It’s easier for me, the consumer, than it would have been before technology.

But what about real estate?

Typically, when technology advances, it drives down costs and significantly benefits the consumer. I’ve just not seen that happen in the real estate industry.

In 2019, we had this $105 billion paid out in real estate commissions. So, we have to ask the question: why? When is the industry going to start being advantageous for the customer to be able to retain their equity and net worth to be able to use it towards milestones or life aspirations?

What now?

I believe in real estate, and I believe that we as an agent community must start to have a shifted perspective: this is the client’s equity, not our commission. And I’m acting for this, as I talk about our fixed fee for service model. At Scout, we don’t charge for real estate commissions. We charge a flat fee.

I’ve found that, a lot of times, the rest of the real estate community is not like that. They really want us to stay in line and charge commissions. Yet, what I think you, as a customer, must understand is that whenever you have an agent who charges commission, there is an eroding factor to your net worth. That’s why at Scout, we want to help you retain your money. We want to charge this fair fixed fee to be able to fund your lifestyle goals.

This is the $100 billion dollar problem. The future of real estate is being on a mission to eliminate commissions so that you can have more equity in your pocket.

After all, the money is yours. Not ours.

CTA to find out more about the flat fee model, get started on your home buying journey, talk to an agent, etc