Realtor fees fluctuate wildly while effort stays about the same. Economists call this a “social waste”.

Percentage fees cause commissions to exceed the effort involved for any given sale. Additionally, one sellers has to pay twice as much even though the effort certainly doesn’t double, it stays about the same.

Fixed, percentage fees cause real estate commissions to fluctuate wildly, while effort stays about the same. Economists call this a “social waste”.

Home appraisers are not allowed to base their payment on a percentage of the home’s value. It is considered unethical. The effort is mostly stagnant, so a percentage fee would cause the fee to fluctuate wildly, which is unfair and unethical. Realtors do this all day long every day.

Don’t accept the grammar of the statement, “I am worth six percent”. What does that even mean? Six percent of what? Can you imagine a physician or an attorney speaking in this way? It doesn’t complete a thought. Six percent of $100,000 is $6,000. Perhaps Realtors are worth that fee. Six percent of $500,000 is $30,000. When someone says they are worth six percent, they are saying they are worth $6,000 and $30,000 simultaneously. Which is it — are they underpaid or overpaid? The effort in selling homes does not rise right alongside the fee. The effort is mostly stagnant, and I can tell you from experience, it’s often easier to sell a $500,000 single family than a $250,000 condo, depending on the market. Economists refer to this as social waste:

Real estate agents typically charge a 6 percent commission, regardless of the price of the house sold. As a consequence, the commission fee from selling a house will differ dramatically across cities depending on the average price of housing, although the effort necessary to match buyers and sellers may not be that different.

Consumers spend $80 billion a year on commissions. Consider what percentage of this is in excess of the actual value delivered. If it is say, 80%, Americans are wasting over $600 billion dollars of their net worth every ten years. Flat fee, alternative brokerages will likely overtake in the residential resale industry in the coming years as lawsuits and innovation create a national conversation around what a “standard” real estate commission is.