Why are commissions 6%?
Issue 30 - April 30th, 2021
The National Association of REALTORS® was founded as the National Association of Real Estate Exchanges on May 12, 1908 in Chicago. With 120 founding members, 19 Boards, and one state association, the National Association of Real Estate Exchanges' objective was "to unite the real estate men of America for the purpose of effectively exerting a combined influence upon matters affecting real estate interests."
The Association's founding boards included the Baltimore; Bellingham, Wash.; Chicago; Cincinnati; Cleveland; Detroit; Duluth, Minn.; Gary, Ind.; Kansas City, Mo.; Los Angeles; Milwaukee; Minneapolis; Omaha, Neb.; Philadelphia; St. Louis; St. Paul, Minn.; Seattle; Sioux City, Iowa; and Tacoma, Wash., boards and the California State Realty Federation (now the California Association of REALTORS®).
The Association became the largest trade association in the United States in the early 1970s, with over 400,000 members in 1975. Today, the National Association of REALTORS® has over 1.3 million members, 54 state associations (including Guam, Puerto Rico, and the Virgin Islands) and more than 1,130 local associations. The NAR wields substantial power as a lobbying organization. Since 1999, the NAR has spent more than $100 million dollars on lobbying efforts around the country. It has consistently ranked among the largest Political Action Committees in the United States - yikes.
The commission structure of sellers paying a percentage of the sale price then splitting the fees between listing agent and buying agent was established back in 1913!
During the ROARING 1920’s, a commission averaged around 2.5 % of a home’s sale price. By 1940, total commission rates in some areas were climbing to 5%. In most markets around the USA, the standard fee to sell your home is 6%.
The commission split is coming under pressure from various angles, BUT the practice of a home seller paying fees to both listing and buying agents is still mainstream. In some other countries, buyers pay their agent fees directly and the seller only pays the listing agent. There are a number of lawsuits working their way through courts and numerous proptech companies going after the fee structure, but time will tell how it all unfolds. I personally think commissions will be compressed over the next decade more than they have been in the last 30 years combined, but I think agents will always be a part of the transaction as it is one of the largest financial and emotional decisions most people make only a few times in their entire lives.
Newsworthy Links To Share
PowerX announced $4 million in seed funding to accelerate the development of its suite of environmental and energy cost-saving products for the home . Brooklyn-based PowerX was founded in 2020, creating a line of precision sensors that gather data about a home’s electricity, gas and water usage. The company then leverages artificial intelligence to optimize the utilities, saving homeowners, on average, hundreds annually on their utility bills after installing the PowerX sensors in a home. (CrunchBase)
Knox Financial announces a $10 million dollar Series A as they continue to build out their technology platform that “takes the pain out of being a landlord”. Knox will manage an existing property you own and maximize returns, or they will also help you identify a property to purchase to build your portfolio. (TechCrunch)
Compass announces their first acquisition since IPO, and they are acquiring a disclosure & transaction management startup called Glide based in California. Glide is used by more than 60,000 real estate professionals across California and they plan to expand Glide’s product across the country keeping the product an independent brand for now. (AP Newswire)
Guesty, a property management platform that automates and streamlines all complex operational needs accompanying short-term rental management, announced it has raised $50M in Series D funding. Since graduating from Y Combinator in 2014, Guesty has expanded into over 80 countries with an end-to-end solution in which they can manage a portfolio of properties across a variety of online travel platforms. (PR Newswire)
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