In 1913, Henry Ford began production on the Model T and the National Association of Real Estate Exchanges (now known as the NAR – National Association of Realtors) created a standardized commission structure for real estate agents. The structure looked like this:
- A customer sells a home
- Customer pays a percentage of the sales price to the seller’s agent
- The seller’s agent shares that commission with the buyer’s agent
The average price of a home in 1920 was $6,296 and the average commission a seller would pay was 2.5%. When someone in 1920 sold their home for the average sales price, the agent they worked with would be paid $157.40 (2.5% of $6,296), and would split this commission with the other agent representing the buyer. Each agent would get $78.70.
Fast forward 20 years and the country is starting to boom. By 1940 there was a lot of development–more communities, more neighborhoods, and more houses. Thus, the need for real estate agents grew. As a result, the standard commission rate agents would charge went from 2.5% to 5%. By the 1980s the standard changed to 6%, which is still the industry standard.
The standardized commission levels for agents was for good reason. It was a very different world back then. Helping people sell or buy a home was tough for many reasons, including the following.
1. NO CENTRALIZED DATABASE OF HOMES
There was not a system that included an all encompassing list of homes for sale. Agents had to do daily research and keep a database of their own.Now there is a centralized Multiple Listing Service (MLS) that has almost all the homes for sale. The agent simply needs to login to the database.
2. NO INTERNET OR OTHER TECHNOLOGY
Speaking of logging in to the database, agents can do this from any device or location as long as they have access to the internet. Moreover, most of this information is also available to all of us through the internet. Not only are there public websites like Zillow that allow us to look for houses whenever we want, but the amount of information in general is vast and no longer exclusive to realtors. The information age started in 1970 and has continued through today.
This abundance of information leads some people to finding a home to buy on their own rather than using a realtor. They simply hire a realtor to get into contract.
3. TRAVEL AND OTHER COSTS WERE HIGH
When the real estate agent commission structure was created, the cost for travel was high. In addition, the access to travel was different. Agents spent countless hours walking through neighborhoods and driving around from town to town. This took a lot of time and was a heavy expense.
As mentioned before, because technology has changed, almost all of us have access to transportation that allows us to drive around various neighborhoods and houses on our own. Do agents still drive clients around? Sure! But the time spent in the car and the cost of that travel has been significantly reduced.
THE BIGGER PROBLEM
In 1920 the average annual household income was $2,160. The commission paid to the agent was 7.3% of the average household income ($157.40 divided by $2,160). In Arizona, in 2022 the average annual household income is $80,779 with an average home price of $470,500. That means real estate commissions paid to the agents are now around 34.9% of an average household income ($28,230 average commission divided by $80,779). The real estate agent commission has jumped from 7.3% of your household wage to 34.9%. That is a BIG jump.
This problem, combined with many other factors, have led us to create a solution. Stewardship Realty is officially open! We have created a refreshing approach to buying a home that gives you thousands of dollars at closing. We couldn’t change the standardized real estate commission world, so we created a company that gives the excess commission back to you.
HOW IT WORKS:
We set a flat fee that we need to collect to operate the business. Any time we get commission over this amount, we give it to you to use at closing.
HOW MUCH MONEY DO YOU GET?
In our home town of Gilbert, Arizona the average home sales price is about $600,000. If we help you buy a home at this price, we would give you over $9,000 to use at closing. That is A LOT of money.
Realtors aren’t evil. Neither are the commissions they make. I believe there was a long period of time when realtors were significantly underpaid! But now the standard commission structure is too high. So, we give the extra to you at closing.
If you are interested in being empowered with money to make your home purchase better, check out our buy a home web page here: https://stewardship.pro/buy-a-home/