Why Real Estate Commissions Are So High: The Cost Of Friendship

Why Real Estate Commissions Are So High: The Cost Of Friendship

I was talking to Harry (not his real name) the other day. Harry is buying a house in Chicago and as part of his agreement with us he is going to be pocketing a real estate commission rebate of around $26,000 at closing. That money is coming from our commission but don't feel sorry for us. We made sure that we are being fairly compensated for the effort that we put into the transaction.

So Harry and I were discussing why more people don't pursue commission rebates like these. After all, they are widely advertised on the Web from both local and national real estate brokerages - you can just Google Chicago commission rebate. Harry had a valuable insight into the barriers that prevent buyers from getting paid to buy a house - or getting a discounted commission on selling a house. Basically friendship is getting in the way.

It turns out that Harry has actually explained the arrangement that he has with us to several of his friends who, like him, are very smart and well educated. Yet they are basically stuck with the traditional real estate model just because they have a friend or relative in the business who would be "offended" if they chose to work with a different realtor or if they asked that friend for a commission rebate or discount. As they explained it to Harry "it would be just too awkward". Wow! They are willing to pay $26,000 to avoid an awkward situation?

Harry is just as dumfounded as I am. Of course Harry considers himself fortunate to not have any friends or relatives in the business for this reason but he has trouble imagining that he would ever let friendship get in the way of saving big bucks. It's just not logical and Harry is a very logical guy.

Another one of our clients, I'll call him Tim here, actually did once negotiate a discounted commission with a friend who was a real estate agent. However, Tim felt like the friend resented their arrangement throughout the entire transaction so when it came time to sell recently Tim called us instead and saved almost $28,000 in real estate commissions.

There is a more fundamental problem here in that friendship or family relationships should never be the basis for selecting a realtor. That decision should really be based upon what a realtor can and will do for you and whether they have the wherewithal to actually deliver what they promise. Home buyers and sellers who don't heed this advice often end up disappointed.

You know all those bad realtor photos that I make fun of? And the incompetent realtors that I wonder how they got hired? Well, I think this is how those realtors get their business. And I have gotten my share of calls from disappointed friends and relatives of the bad realtor over the years:

Hapless buyer/ seller: "Hi, I was wondering if you could help me. I'm _______ a house and my realtor ____________."

Me: "I'm sorry but since you already have a realtor I can't help you."

Hapless buyer/ seller: "But ________________"

Me: "I'm really sorry. Can I ask how you ended up selecting this realtor?"

Hapless buyer/ seller: "They are my friend/ nephew/ college roommate."

Now if they aren't already in the midst of a transaction they can terminate their relationship with their realtor but even then it's too painful for them to go down that path. Most decide that they would just rather lose the money or the time. Go figure.

The funny thing is that the whole basis of the real estate model is predicated on exploiting personal relationships. All the coaches and trainers drill into every real estate agent's head from the very beginning how they need to work their "sphere of influence." That's real estate speak for unsuspecting victims.

And that's just another reason why real estate commissions are so high.

#RealEstateAgents #realtors

If you want to keep up to date on the Chicago real estate market, get an insider's view of the seamy underbelly of the real estate industry, or you just think I'm the next Kurt Vonnegut you can Subscribe to Getting Real by Email. Please be sure to verify your email address when you receive the verification notice.

Leave a comment