Every so often when challenged as to why real estate commissions are so high a listing agent will say something like "Every time one of my selling clients signs a marketing agreement with me
I incur between $2500-$3000 in real costs". That is a direct quote from a Chicago area agent responding to a recent Trulia question about discounted commissions.
Uhhhh. That's almost impossible. Several hundred dollars max for top of the line photos, brochures, and some online distribution. Notice I said almost impossible. There is one way that realtors could in fact throw away a lot of money: print advertising. Print advertising is extremely expensive. But it's no surprise that the Internet has changed real estate and the newspaper business forever. There's a reason that The Tribune created Chicago Now.
So let's start by looking at how buyers have been finding their homes over the last few years. The chart below is based upon data from the latest NAR (has nothing to do with rifles and everything to do with real estate - unless you try to cut their commissions) survey of home buyers and sellers:
So the biggest impact of the Internet has been on the role of the real estate agent but we can talk about that another time. Let me draw your attention to that little blue sliver at the bottom. That's the total impact of newspaper and magazine advertising of real estate listings and it never was that huge of a factor. But the Internet has been squeezing print out of the picture even more - for 2008 fewer than 3% of buyers found their home from a print source. That's not surprising since those print ads are not searchable or sortable.
When I started in this business years ago I interviewed with all the major brokerages in the city and asked each of them if they still did print, which they all replied they did. Then I asked them if it produced results and the answer was uniformly no. Then I asked them why they did it and again I got a uniform answer: "Because clients expect it". Sounds like a politician - give people what they want, not what they need.
Well, home sellers and realtors have wised up a lot since I conducted those interviews. Here is what has been happening to spending on newspaper advertising for real estate:
The blue line in the graph above is the actual quarterly data and the red line is a 4 month moving average, drawn to smooth out the effect of seasonality. To put it mildly...real estate newspaper advertising has fallen off a cliff! What's odd in those numbers, though, is that historically advertising spending has been highest in the fourth quarter (see those regular spikes?), when real estate activity is dying out for the year. Now why is that? Are realtors trying to compensate during the slow season? That wouldn't make any sense - but then this is real estate.
If you look in the Sunday real estate section you will find that the large, traditional brokers are still running full page ads where they rotate their listings. Some of that is funded by the agents, whom they charge annual fees and listing fees, and I'm sure the brokerages subsidize it as well so that they can get their name out there. In addition, the large brokerages will occasionally run full page image ads - e.g. photos of attractive buyers and sellers sipping champagne, in formal attire. No wonder commissions are so high. But I guess champagne sipping, tuxedo wearing clients don't worry about high commissions.
So what do you think? Would you expect your listing agent to do print advertising? If your agent gave you his print dollars and told you you could either keep it or buy your own print ads what would you do?