What's a Real Estate Agent Worth?

Sitzer Fallout

There’s been a lot of buzz and fallout lately over the Sitzer lawsuit and $1.8 billion verdict awarded to home sellers. This legal action questioning the practices of industry giants like the National Association of Realtors (NAR) and Anywhere has sparked much debate around what real estate agents actually do to earn their commissions. With the courtroom spotlight shining bright and more suits in process, this seems like an apropos time to take a hard look at what an agent is truly worth in today’s market.

Real Estate Commisson Trends

BrokerBuzz took a data-driven look at real estate commission rate trends over the past few decades. Rates steadily dropped from around 6% in the 90's to just under 5% in 2019 - an over 16% decline. The assumption was that with tech innovations like consumer accessible MLS listings portals and brokerage back-office automation, rates would keep decreasing. 

However, surprisingly commission rates bounced back up to 5.3% by 2023. So what happened? For one, it calls into question the assumption that real estate fees will follow a straight line downwards over time. And two, these dynamics shine light on what is perhaps the fair market value for agent representation in the current incarnation of how real estate is practiced, and indicates there is something of a floor when it comes to agent rates.

A Real Life Case-Study

We also have a fascinating case study in agent fee disruptor Trelora. Bursting onto the scene in Denver in 2013, Trelora made waves in the real estate brokerage space by offering radically lower commissions, typically $2,500 to the buyer's agent and $2,500 to the listing agent. Their model played on the notion that consumers were paying too much, and sought to reset public perception on industry fees.

Trelora's low-cost approach was an existential threat to traditional agents, with their livelihoods in jeopardy if it succeeded in gaining share. But while Trelora did pick up business, it never reached beyond roughly 1% market share in their local market. The low fee model did not see the industry ablaze, as some had feared, and ultimately they ended up raising list-side fees to $3,000 and letting buy-side commissions revert to the 2.5-3% range. 

So if rates aren't simply on a race to zero in some inevitable cost decline, what value does a contemporary real estate agent provide?

A Real Estate Transaction as a String of Decisions

One way to think about the value an agent provides is to think of the real estate transaction as a series of decisions, the sum quality of which pretty much determines the outcome of the transaction. 

The buyer or seller can ask themselves: did I get a good deal or not? Did I end up buying in the right area for my needs, or could there be regrets down the road? Did I lead with the right offer and negotiation strategy, or did I overpay or leave money on the table? Did my agent utilize a competent home inspector that isn't going to miss things and leave me in a lurch? These are all examples where a good agent makes a tangible difference and presents value in client representation and transaction scenarios.

Great Agents Provide Great Value

In fact, with strong agent representation, it not only keeps you from making missteps, but a good agent is capable of opening new doors (literally and figuratively) and seeing possibilities that a lesser agent will walk past or not have the ability to manifest, And good decision-making leads to a layering effect where each sequentially smart choice opens the door to even better end results, almost like earning compound interest on each decision milestone.

And while the broader agent ecosystem certainly has inconsistencies in competence and professionalism, it’s clear that skilled agent guidance pays dividends. With so much at stake on one of life's largest financial transactions, experienced guidance gives the best chance for the optimal outcome.

In Closing

As mentioned above, all of this analysis of agent value takes place in the context of the current real estate ecosystem. With the recent lawsuits and verdicts, all eyes will be on any pending legislation, regulation or other industry changes that could result. Should the role or conduct guidelines for real estate agents fundamentally change as a result, the market value of what they are able to provide may change as well.

Ultimately there is no doubt that the general public is well-served by ethical, customer-focused, high-performing agents. And as borne out by historical industry data, there seems to be some sticking power and consumer willingness to pay current industry rates for that agent expertise and guidance.

Of course, no one has a crystal ball and it's impossible to predict just how these lawsuits could affect the landscape of the real estate industry. Things could look very much the same in the coming years, look completely different, or land somewhere in between as this all plays out. But for now, skilled agents continue to provide tremendous value in navigating clients to optimal decisions and transaction outcomes.