Broker Pay
By Jim Palmer Jr.

Having spent decades in the real estate profession as a Designated-Managing Broker/Owner, I’ve heard a lot of comments from folks expressing discontent about how much brokers get paid. On the face of that accusation, it may seem like a reasonable complaint, but those protesters haven’t really thought it out. Their actions may be the very reason real estate brokers have to charge what they do to stay in business.

Real Estate Brokers are sort of like an old Chinese doctor, if the patient doesn’t get well they don’t get paid.  In other words, if a transaction fails to develop during the listing period and then fails to close, the broker not only comes away empty handed, but comes away with a depleted bank account. 
Across the whole country the public has chosen that commission based (pay-when-it-closes) system, even though some practical thinking  brokers have attempted to develop fee-based business models where they get paid when they work, for the hours they work, like most normal 9-5 jobs.  However, consumers continue to reject that model and consistently gravitate towards the commission based pay system for brokers because they don’t want to pay out-of-pocket for those services.  Whether they are on the selling side or the buying side, the majority of consumers would rather pay more for brokerage services so those fees can be extracted from the proceeds generated by the sale of property.

In one recent case a broker took a listing that was an hour drive from their office.  Once listed, the property languished on the market for many months.  The seller had intentionally priced the property higher than the broker’s market analysis suggested listing price, thinking that the broker had a low opinion of value.  The market-wearied-seller eventually released the listing and decided to try again at a later date.  The broker was left without a dime for hours worked and thousands of dollars spent in photography and advertising. 

This type of scenario plays out over and over again especially in a difficult market.  The same is true for buyer’s agents who come up empty after a valiant effort.  Those buyers and sellers rarely think to compensate their broker to even the scales. What may seem like thoughtlessness on the part of real estate consumers is really a conscious choice to pay more, for the ability to have that pay financed into a loan or extracted from equity at point of sale.