WAV Group is routinely hired to help brokers understand their competitive strengths and improve areas of competitive weakness. One of our tactics is to look at compensation trends in the market, and cross referencing competitive brands. This article will provide a snapshot of our techniques so that you may deploy them at your brokerage. Since the offer of compensation is the leading conversation in the marketplace today, this is a good time to share.
The offer of compensation is a confidential data field in the MLS. Well, at least in markets where they have not changed that field policy. If you notice on Redfin, they display the buyer’s agent compensation in every market where they are permitted to display it to the public – California Regional MLS is an example. For our clients who use VOW or Full Broker data feeds, you can easily pull the compensation data for analysis without looking for it single listing-by-listing in the MLS system.
Full listing firm commission ranges from 4% (in extremely high-end markets) to 7% (in the lowest markets); where some portion of that is listed in the MLS as buyer-agent-commission. The offers of compensation to the buyer’s agent in an MLS can range from $1 (sad, but true) to 3% of the commission, depending on the market. During the height of the foreclosure debacle, we saw buyer agent commissions surge to 3.5%, and some 4%.
The first observation is that the MLS does not know the total commission in the listing agreement. The full seller commission is not recorded in the MLS. This is an important part of the fact pattern to understand. Many journalists presume that a 6% commission split is half because that is an industry average. In reality, it is highly probable that the client agreed to a commission percentage of some other amount, like 7% or lower at 5%. We don’t know, and we cannot presume what is in the listing agreement based upon the offer of compensation to the buyers’ agent.
The second observation is that the industry should stop using the word “split.” The word split has the tonal meaning of dividing into half. My experience leads me to believe that many transactions are split in half, but not always. The division of commission is heavily dependent on market conditions. When there are more sellers in the market than buyers (high foreclosure periods), the seller’s portion of the commission may be lower than the buyer’s commission. When there is a scarcity of listings and plenty of willing buyers (ergo 2022), the portion of the buyer’s commission is often lower than that of the seller.
Study the offer of compensation by brand
By studying the offer of compensation across brands, the observations draw different realities into focus. Obviously, there is the commission pattern of discount brokers. However, even Redfin has backed off the discount broker business model. Generally, it is common to see discount brokers offer compensation to buyer’s agents that are lower than the norm. It’s their business model, so the lower offer of compensation is rational. (Interestingly, we also notice that discount brokers will often start off with a lower offer of compensation, then convince the seller to switch to a higher commission model as days on market goes over 60).
The franchise brands and leading independent brands in the market were very consistent – KW, Anywhere, RE/MAX, etc., offer compensation at about the same rate. They have the bulk of the market share as a group and normally offer 3% in a 6% market, or 2.5% in a 5% market. They tend to offer a 50/50 division of commission between buyer and listing agent. WAV Group has done commission studies more than 100 times – here’s an example of a report we published.
Today, there is a fast-growing brand consuming agents whose buyer commission offer is consistently 0.5% below the leading franchise brands. I will not name them here, but it will be self-evident if you do this research. Armed with this information, you can retain more agents. I will get to that at the end of this article.
What does the offer of compensation say about your brand?
Brands would do well to remember that the offer of compensation is universal. Universal has the meaning of putting a value on the work of a buyer’s agent. To me, the .05% commission haircut by this broker sends a clear message that the buyer’s agent is not worth the full market commission. Again, I could be wrong. I have not seen the listing agreement, so it’s possible that this broker takes listings at a lower commission rate. Or, as I stated above, the buyer’s agent in today’s real estate market is less valued because there is a scarcity of listings.
The point of this discussion is that brokers need to pay close attention to the offer of compensation by their competitors. If another brand in the market is consistently undercutting the offer of compensation, it signals that their agents are not getting full commission for their services. Use that data in recruiting and retention if agents operating under your brand are consistently getting a higher rate from the seller because of your brand’s service offerings.
Using the offer of compensation in recruiting
Brokers should look at the trends of offers of compensation in the MLS to get smarter about recruiting. Brokerage brands that deliver the value to consumers because of the rich quality of their services will command higher commissions for their agents. Visually, 90% of a 4% commission is a lot less than 80% of a 6% commission.
Back-of-napkin calculation for $100,000 house:
4% commission = $4000, agent commission for half at 90% = $1800
6% commission = $6000, agent commission for half at 80% = $2400
As an agent, would you rather get 80% of full commission or 90% of discounted commission?
We hope that this insight helps you compete effectively in the market. Know your worth and understand that the percentage of broker dollars is highly impacted by the commission offered by the seller to the listing and buyer’s agent.