Are Commissions Going Down?

Commoditization vs. Customization... More than a dozen readers responded to my April 11 Dispatch, Hot (Residential) Topic: Discount Commissions, which asked the question: Will new business models reduce commercial commissions? Here is a cross-section of comments.

A veteran broker writes, "As far as technology and new tools that make inventory more available to the general public go, I am sure that many of these are here to stay. But I do not see them significantly affecting the traditional role of the brokerage community: deal-making. ... Any homeowner can operate a skill saw but that does not mean that he can build a house like a contractor."

The owner of a private equity investment firm writes, "A listing broker is now expected by sellers to have a very substantial database of potential buyers, and, as a result, one aspect of commission compression arises from the seller's expectation that he will not need to provide a 'broker co-op' or 'buyer-side' commission."

A commercial broker writes, "Even though potential clients might be led to have a perceived diminished value of agents, I would argue that the information, standardization, and other technological advances are only making us as agents more productive and valuable to our clients because we have more information and tools at our fingertips and know how to apply them."

A commercial broker writes, "In point of fact, the commercial brokerage business already has several widespread fee discounting models in it. Fees paid on the sale of many (most?) institutional-grade investment properties are a fraction of what is typically charged in more quotidian [Definition: ordinary, commonplace] matters... Also, it is hardly uncommon for brokers engaged in 'corporate services' ... to remit a portion of their fees to their client -- a practice that is often referred to as 'gain sharing.' This is just a roundabout way of discounting fees."

Correction... Two former colleagues corrected my earthquake memory (!) fault in the last Dispatch. When the Loma Prieta Earthquake struck San Francisco on Oct 17, 1989, I was on the 21st floor of 345 California Street, not One Embarcadero Center.

-- Peter Pike