- Miller Samuel Real Estate Appraisers & Consultants - http://ms.clash.outthinkgroup.com -

Out Of Commission

Despite unusual examples of higher brokerage commissions, as was raised in the recent New York Post Story: Climbing Commission [Note: Reg.] [1], only a small number of brokers are making significant income during the current real estate boom.

Why?

Well, most sellers have the perception that since properties have generally doubled over the past five years, commissions should have followed suit, since the commission is a percentage of the sales price. This is the topic of an excellent article in Slate.com called: Bubble-lusions – Why most real-estate agents aren’t getting rich. [2]

One of the reasons that individual real estate brokers are not doing as well as everyone thinks, is based on the economics principle “zero-profit condition.”

In a business with free entry, new participants will keep entering until no money remains. And becoming a real-estate agent is almost free…With all these new agents swarming onto the scene, the price they charge may remain constant, but the number of houses each sells will not.

In other words, as more agents flood the market to get a piece of the pie, there is less of that pie to go around.