The death of commision sales?

An interesting new innovation to the real estate industry seems to have gained in popularity recently, and that is flat fee real estate. We are all familiar and completely accustomed to the current modus operandi of agents and that is to take a commission, typically 3% of the property value going to the realtor from both sides of the transaction. It's the old standard model and has worked brilliantly since Moses led the Israelites away from their depreciated foreclosed homes in Egypt to the promised land of new swanky beachfront property along the Dead Sea.

Still, just google flat rate real estate and you'll find many agents like this guy touting his daring to break from tradition. He and his fellow rebels are part of a new process that is definitely significant now, but the question remains: will it spread?

Charging a flat fee for real estate certainly makes some sense. It's like an analogy I heard about Coinstar machines, which charge 8.9% of all the money they turn into cash. Say you have 100 dollars worth of pennies and 100 dollars worth of quarters. You put them both in and get $91.50 from each bag. However, the bag of quarters contained twenty-five times less coins and thus was 25 times easier to count, so how come it was charged the same high rate?

In real estate, is it really twice as much work for an agent to sell a million dollar house than a half million dollar house? It's essentially the same service in each case, though maybe a little more walking to do during the tours.

Still, such a huge deviation from a tried-and-true practice that has been in use forever isn't likely to happen any time soon because people like the Palos Verdes agent (http://www.mygrpr.com/grclips/parsed/CA_e043_01072009_1_1.pdf) who made $183 million in sales last year, translating to an income of about $11 million by the standard 6% commission, would never stand for that . His deal is just too sweet right now.

So in the end, commission sales will probably remain on its throne right next to the qwerty keyboard, as systems that have spawned more efficient and logical replacements, but win out in the end out of familiarity and tradition.

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