What if Realtors (R) Charge an Hourly Rate?

You may have heard all the recent news about the Anti-Trust lawsuits against the National Association of Realtors for coercion concerning "commission fixing".  What if Realtors (R) charged hourly rate like attorneys?

 

In a recent discussion with a friend, he mentioned to me that only attorneys get paid on a percentage basis for their services.  I've been thinking a lot about that recently.  Actually, attorneys charge a retainer and charge by the hour.

 

Bad attorneys and average attorneys charge over $350 per hour to hire them for representation.  For only 3 hours of work, we're talking over $1000.  For most people, attorneys are too expensive to hire. 

 

In the event an attorney is hired on a contingency fee basis, they usually charge 30% or more of the winnings from the case.  They take the risk to cover all of the upfront costs in exchange for that risk.  They may not win. 

 

So, the recent lawsuits against the real estate community essentially stated that 6% is the industry norm and is driving up the cost of real estate for sellers.  In this article, I'd like to break it down and consider an alternative approach of hourly rates for real estate services.

 

Let's set a rate of $350 per hour.  You may consider that too high considering attorneys had to go to expensive law schools to earn their degrees.  Only the best are able to pass the bar exam to know the generalized laws associated with the entire law. 

 

All of that is true.  Realtors on the other hand pay a few thousand dollars and take some 90 hours of specialized training in real estate law associated only with the selling of real estate.  Then annually they are required to take hours of continuing education to stay fresh on the laws that affect their craft.

 

Attorneys and Realtors (R) alike carry insurance against mistakes or misrepresentation. 

 

Now, in no way am I saying that a Realtor (R) has the same credentials as an attorney.  In fact, we don't.  So let's back off to $200 per hour for our clients.

 

What are we expected to handle?  We need to be experts in real estate law, water and mineral rights, EPA laws, Fair Housing laws, surveys, title insurance, lending and loan programs, expert marketing skills, negotiations, contract skills, etc.  Realtors (R) wear a lot of different hats beyond the front door.

 

 

Total estimated hours per Buyer's real estate transaction.

53 hours at $200 per hour = $10,600.  Based on the hourly wage standard, this is due, even if the deal does not close.

 

Total estimated commission assuming 3% as the standard = $10,500.

 

In this scenario, the number of hours may vary widely as some clients require slightly less and some require quite a bit more to identify their homes.  When we add in out-of-state family members who are assisting with the transaction for a loved one, the hours increase more. 

 

Now from that $10k plus wage, the broker is responsible for paying the following costs of doing business (estimated):

 

Total estimated Expenses are 83.5% of total revenue coming in.  The broker's wage is actually only 16.5% of the total fee collected.  For a $10,500 fee, the broker may only keep $1732.50 for 53 hours of work or $32.69 per hour.

 

When a Seller hires a broker to sell their house, what are they paying for that is so expensive to them?  How can a broker justify their fee?  Honestly, how can they not? 

 

If the average broker only does 6 transactions per year, they work often 50+ hours per week for meager wages when all the expenses add up.

 

Attorneys charge $350+ per hour + expenses.  That's just their wage.  Brokers deduct all their expenses from their wages and are expected by the general public to advise them like an attorney as they have all kinds of legal questions. 

 

When advised to seek the counsel of a licensed attorney, most people don't want to pay the added expense, so they "trust" their broker's direction. 

 

Well, there you have it.  Should we move to an hourly rate? 

 

If we do, buyers will be responsible for the hours spent, not the result.  Under the current system, brokers are ONLY paid when the buyers close on the purchase of a home. 

 

Also, it is important to note that commissions have always been negotiable between the parties of the transaction.  It is common for sellers to accept the payment of the buyer's broker commission because they know buyers don't have the money to pay it.  In many cases, the seller agrees to cover the cost from the proceeds of the sale.

 

When the seller hires a professional marketing firm, aka a Realtor (R), to sell their house, there are costs associated with that choice.  Around 10% of the houses sold in America are sold by owners and no Realtors (R) were involved. 

 

Hiring a Realtor (r), just like an attorney, is a choice that consumers have.  How you want to pay them is a choice you have. 

 

Remember that the next time you want to hire a Realtor (r). Perhaps you present them with the option to pay them hourly with an upfront retainer fee and bill monthly until their services are no longer needed. 

 

Well, that is definitely an alternative approach.