Inflation-Adjusted Commissions Up 25% From Pre-Boom

By request of ChrisM and Alex, I ran the commission numbers I posted Friday through an inflation-adjustment. The chart below plots the total yearly commissions on single-family home sales in King County in 2011 dollars, adjusted based on the Bureau of Labor Statistics Consumer Price Index for the Seattle area (series CUURA423SA0).

Total Real Estate Commissions on King County SFH (inflation-adjusted)

After you adjust for inflation, commissions in recent years are down 55% from the 2005 peak and lower than they have been since 1998. However, they are still up 24% from the average amount of potential commissions collected through the pre-boom years of 1992-1996.

Update:
Sure, wait until I post this to make an additional request that I adjust for inflation and population. Here you go!

Total Real Estate Commissions on King County SFH (inflation and population-adjusted)

After adjusting for population, commissions are down 58% from the 2005 peak, and basically the same as where they were from 1992 to 1996 (up 2%).

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

33 comments:

  1. 1

    Adjusting for Real Energy/Food Inflation

    And bottom 90% wage deterioration; makes the green bars half what they were in 1998, IMO….

  2. 2

    Shouldn’t this be inflation adjusted and population adjusted? :-D

    Seriously, you would expect gross commissions to increase as the population increases. And you would expect that increase to be slightly greater than the population increase, due to the housing supply lagging at times.

  3. 3
    ChrisM says:

    Thanks, Tim! I also agree w/ Kary on the significance of population. Once adjusted for inflation & population, I suspect we’re back at “normal.”

  4. 4
    ARDELL says:

    I’d like to see this for King, Pierce and Snohomish combined, as an adjunct to Case Schiller reportings, and on the same basis. Possibly King, Pierce and Snohomish separately, to show how great the disparity can be between these three local Counties.

  5. 5
    ARDELL says:

    So…Home Prices are DOWN from “peak”…but commissions are UP from “pre-boom years”. But home prices are not UP from “pre-boom years” and Commissions are not DOWN from “peak”.

    I think I’ve got that now. Thanks for the unbiased reporting:)

  6. 6

    RE: ARDELL @ 4RE: ChrisM @ 3RE: Kary L. Krismer @ 2 Some of these requests are over 10 minutes old, and yet we don’t have the data from Tim. He’s slowing down!

  7. 7
    The Tim says:

    By ARDELL @ 5:

    So…Home Prices are DOWN from “peak”…but commissions are UP from “pre-boom years”.

    I guess you missed the headline of Friday’s post: “Total Commissions Cut in Half Since 2005 Peak

  8. 8
    Blurtman says:

    I think RE agents as well as bank employees would fall into this class. These were the folks sent off on that exploratory spaceship in The Restaurant at the End of the Universe.
    ——-

    Rentier capitalism is a term used in Marxism and sociology which refers to a type of capitalism where a large amount of profit-income generated takes the form of property income, received as interest, intellectual property rights, rents, dividends, fees, or capital gains.

    The beneficiaries of this income are a property-owning social class who, it is argued, play no productive role in the economy themselves but who monopolise the access to physical assets, financial assets, and technologies. They make money not from producing anything new themselves, but purely from their ownership of property (which provides a claim to a revenue stream) and dealing in that property.

    Often the term rentier capitalism is used with the connotation that it is a form of parasitism or a decadent form of capitalism.

    http://en.wikipedia.org/wiki/Rentier_capitalism

  9. 9
    The Tim says:

    RE: Kary L. Krismer @ 2 & ChrisM @ 3 – Sheesh, so demanding! Done.

  10. 10

    What? You’re ignoring Ardell’s request for 3 county data tracked against C-S data! ;-)

    Seriously, thanks.

  11. 11
    ARDELL says:

    RE: Kary L. Krismer @ 10

    I guess 3 County data only works when you want home prices to look lower than they are…but not when it makes real estate commissions look lower. Sorry…forgot where I was for a minute there. :)

  12. 12
    The Tim says:

    RE: ARDELL @ 11 – More like, adding a single column of data to my spreadsheet that’s copy-paste from another data source is easy to do. On the other hand, to add two more counties I’d need to manually transcribe numbers from 23 different pdf files, plus add population data as well. Not as easy to do a quick mid-day update.

    But hey, ascribe whatever motive you want. It’s your imagination.

  13. 13
    Scotsman says:

    RE: Blurtman @ 8

    Well, well. That just about covers it aside from a light coating of monopoly flavored frosting.

  14. 14
    Scotsman says:

    RE: ARDELL @ 11

    You should try tossing in the old sexism thing too A multi-pronged attack is always best.

  15. 15
    Passed Doo says:

    “14. Scotsman
    January 23, 2012 at 1:23 pm | Permalink
    RE: ARDELL @ 11 –

    You should try tossing in the old sexism thing too A multi-pronged attack is always best.”

    Don’t forget walking on an empty stomach all that way uphill to school in the snow and rain with holes in the bottom of your shoes in a hand-me-down coat with no buttons. That always gets a knowing smile from the rubes…

    Next Relevant Category Please . . .

  16. 16
    David Losh says:

    RE: ARDELL @ 11

    I didn’t think you were getting this before, but definitely you are missing the point.

    “After adjusting for population, commissions are down 58% from the 2005 peak, and basically the same as where they were from 1992 to 1996 (up 2%).”

    If Tim did the three counties, yes, of course you are right the commission dollar amounts would be even lower. The inflation adjustment would be the same.

  17. 17

    By hinten @ 16:

    And the only reason I submit myself to this predatory pricing is that certain real estate companies have clearly shown that they prefer to sell to agents within their own network..

    [The post quoted was apparently deleted.]

    Someone may have convinced you that was necessary, but they pulled the wool over your eyes.

    It’s hard enough to find a buyer a property without worrying about which company has the listing. An agent who did that would not last long.

  18. 18
    David Losh says:

    RE: Kary L. Krismer @ 17

    That’s true though. If there was a comment like this it is a fact of the Real Estate industry.

    There are all kinds of tricks to the trade. Selling in house is one of those tricks.

    The listing agent’s duty is to get the most for the seller. The buyers today are looking for anything that is half way decent. Many buyers will pay a premium to get “first pick” in this market.

    There is a new function that allows us to delete our comment. That’s pretty cool.

  19. 19
    anon says:

    Maybe we can break down the numbers to include revenue per real-estate agent. I think I remember a Slate article that talked about the general revenue per agent stays the same.

    Ahhh here it is:

    http://www.slate.com/articles/business/the_dismal_science/2005/08/bubblelusions.html

    I would be curious if that has held true since the publication.

  20. 20
    David Losh says:

    RE: anon @ 19

    That was a press release of that era. It was absolute nonsense. The rise of the 1% listing agent came with the hot market of 2005, 2006.

    The Department of Justice was getting hammered by the banking industry who wanted a “fair share” of the Real Estate commissions. The bankers got the rebates they were after. The rest of it was pure theatrics.

    Go ahead, prove me wrong.

  21. 21
    ARDELL says:

    RE: David Losh @ 20

    I know many agents who have done listings at 1% for at least 7 years prior to 2005. They also make it harder for anyone else to sell their listings, so they trade the 3% listing for a 4% total.

    Sometimes when a buyer is having a very difficult time getting the 3% Buyer Agent Fee it is because the listing agent was luring the buyer direct to get 4%, never intending to walk away with only 1%. So when the buyer starts talking about keeping the 3% when they show up without an agent, it ruins the entire business plan of that agent model, and often makes them very angry.

    I’m sure many a buyer asking to see the house with the listing agent, intending to keep the Buyer Agent fee, has run into this obstacle at least once. Sometimes it is because it is one of the “1% Listing Agents”. Not always, but sometimes. There’s no way to know at time of offer, as the Listing Agent fee is not disclosed the way the Buyer Agent fee is disclosed in the mls.

  22. 22
    Macro Investor says:

    RE: Blurtman @ 8

    +1 Green Blurtman:

    I’ll stop calling them leaches when they charge a fair hourly rate, instead of trying to skim off the equity of a property. I recon about $40 per hour would be generous for what they do. That goes for the entire real estate food chain — mortgage brokers, agents, escrow, appraisers, builders, etc…

  23. 23
    Macro Investor says:

    RE: ARDELL @ 21

    “Sometimes when a buyer is having a very difficult time getting the 3% Buyer Agent Fee it is because the listing agent was luring the buyer direct to get 4%, never intending to walk away with only 1%. So when the buyer starts talking about keeping the 3% when they show up without an agent, it ruins the entire business plan of that agent model, and often makes them very angry.”

    Yeah, what a disaster. Imagine that pesky buyer… you know — the only one bringing MONEY to the table — expecting to be treated honestly, and getting in the way of some agent’s under-table scheming. /sarc

  24. 24
    David Losh says:

    RE: ARDELL @ 21

    There were plenty of agent business models that would list for 1% because property was flying off the shelf. There was no gimmick, no muss, no fuss. You list it in the morning, and it sells, well maybe not in the afternoon, but quickly.

    That’s how we saw a rise in redfin, 500 Realty, MLS for Owners, oh yeah I forgot Zip Realty, and Findwell.

    Then when things began to go down in price that 1% listing fee looks pretty good.

    Here’s a guy who built his Brokerage on the 1% deal http://www.upgradere.com/

  25. 25
    S-Crow says:

    RE: Macro Investor @ 22 – That goes for the entire real estate food chain — mortgage brokers, agents, escrow, appraisers, builders, etc…

    Quick Comment: Being that I run a tiny escrow company you gave me a really good chuckle. Our office averages about $1100.00 for your average sale in Snohomish Co, prior to expenses, overhead, Class A office space, enormous investments in software, annual support fees, equipment, professional licensing fees, and about $8000.00 annual fees for a $2Million liability, E & O policy (with ZERO claims since we opened) before we make a dime. And we get audited by Dept. of Financial Institutions who’s sole purpose is looking for trust account irregularities among other things.

    This is what you want to pay about $40 per hour for: Our expertise is sprinkled with the limited practice of law, heavy in finance, heavy in title issues and an enormous amount of trust is placed on our shoulders, never mind we incur probably the highest risk associated within the real estate transaction, particularly with short sales. People trust us to pay off their mortgages, provide clear title (which can be more challenging these days) and transfer legal ownership of land and their home. And yet, this make me chuckle even more, we are paid the very least in the real estate “food chain.” It takes YEARS of in-the-trenches experience, not in sales, to have the almost insane idea to open your own escrow firm and more craziness to compete with the 4 big Title Insurers who enjoy near monopoly status to the gullible public masses across the country.

    -Tim

  26. 26
    The Tim says:

    By S-Crow @ 25:

    …and more craziness to compete with the 4 big Title Insurers who enjoy near monopoly status to the gullible public masses across the country.

    Hey now it’s not just the gullible masses at fault here. Banks routinely require that you use their title and escrow companies if you want to buy an REO or short sale from them. It may not be legal for them to do so, but that certainly isn’t going to stop them from rejecting any offers that insist on using a small, independent escrow firm.

  27. 27
    Jonness says:

    By Macro Investor @ 22:

    I recon about $40 per hour would be generous for what they do.

    What are you trying to do, force Kary and Craig to go back to practicing law?

  28. 28
    David Losh says:

    RE: Macro Investor @ 22

    If I could get $30 an hour working in Real Estate that’s all I’d do. The fact is the industry doesn’t pay that kind of money. It pays chunks of money, on a promise. Maybe something will happen, maybe it won’t. Maybe the government will come up with another screwy program, maybe they won’t. Maybe Bank of America will crash the short sale system by threatening deficiency action.

    Real Estate is a hard job to make work, and keep working.

    What the public reacts to is the neighbor, or nice person they know, who goes into the “business” and sells their “circle of influence” houses. They do about 20 transactions, then they are done. They do a few more “by referral only” or some other life skill training, then they are done, and keep that license at the local Brokerage just in case.

    Anyway a working agent has a business plan they develop, and work. It takes many years to ramp up, and you have to be constantly vigilant. There is no get rich quick scheme about it. You invest well for the lean times, and work like a dog in the busy times.

  29. 29
    ARDELL says:

    RE: David Losh @ 28

    There are only 2 questions ever, David:

    1) Maybe there will be a house worth buying. (when representing a buyer)

    2) Maybe the house and price are good enough for someone to buy it. (when representing a seller)

    The rest is all BS…new programs…old programs…tax credits…snow…wrong season…right season…list on a Sunday…market up…market down…interest rates low or high, etc…

    When a house doesn’t sell it’s about the seller not being motivated enough to sell it. Pure and simple. Someone else sold THEIR house today…

    When a buyer can’t find a decent house on market for 3+ years…it’s not about the houses or “low inventory”. Someone else found a good house to buy in that 3+ years….

    There is never a day when one is assured that the house they are buying will be worth more when it comes time to sell it.

    There is never a day when one is assured that the house they are selling will never sell for more money sometime in the future.

    Every day someone is buying a home or selling a home…as long as there are 365+ sales in a year…well, 366+ this year.

  30. 30
    David Losh says:

    RE: ARDELL @ 29

    Are we still talking about commissions? If we are talking about commission then you are talking about sales. That’s the objection I think most people have.

    Real Estate is a profession. It’s an anchor in your over all portfolio. It is an investment in your security, and a means to pass something on to your children.

    What you are trying to say is that the Real Estate market place is a snap shot in time. That’s true. That shap shot also has a past, and future. The future depends on broader economic circumstances.

    A professional makes the best decision they can based on research. A Comparative Market Analysis is only looking at one corner of the economic picture. A Real Estate professional is involved in the business of Real Estate. A professional has a stake in the business.

  31. 31
    Jonness says:

    RE: David Losh @ 30 – I agree RE is all about hard work and is hard to make work over the long term. I think what gives it a bad rap is:

    1) It is very difficult to find a RE agent who actually knows anything and has the client’s best interest in mind. I realize, many agents will take issue with this, but I’ve worked with perhaps a dozen agents and have only met one who played the game straight with me. As far as I can tell, it’s not about how much an agent charges. It’s more about this person’s inborn personality.

    2) The RE model is flawed in favor of driving up sales numbers. In order to accomplish this, agents ask one buyer/seller combo to pay for the work the agent did in behalf of perhaps dozens of other clients who did not buy or sell. In short, the buyer/seller combo is paying for the agent’s leads and advertising. IMO, it would be better to have fewer agents and only clients who are serious enough about buying or selling to pay for it up front. However, the NAR disagrees as the current model preys upon the stupid, and there are plenty of these types to go around.

    Thus, it’s both tough on the agent and the buyer or seller. It looks good when the gettin is good (like a bubble runup and multiple offers the day you list every single property you list). And it looks bad when the gettin is bad.

    The serious professionals know how to ride the ups and down, not get discouraged, and keep the game going. The less enthusiastic end up working at Target.

    Well, from an outsider’s prospective, that’s my take. But boy have I met a lot of screw ball agents with a get rich quick scheme built upon the premise of screwing their clients to tears. I suspect, as Kary once alluded to, that these types typically don’t last because being a successful agent depends upon personal recommendations and repeat sales. If so, I take it RE has a very high personnel turn over rate.

    At the end of the day, I think the “commission” model is the evil that ends up screwing the hard-working honest folks on both sides of the coin, as most serious buyers and sellers would have no problem paying you $50/hr for the professional level of work you put in.

  32. 32
    ARDELL says:

    RE: Jonness @ 31

    I agree with everything you say except the “per hour” or “menu of services” plan has been tried, but it just hasn’t worked. We work many hours for people when they don’t see us. If we didn’t do that work, we wouldn’t know what we need to know on the day of the offer. Often we have to see the houses you don’t want to see to compare to the one you do want to see. If someone hires me to represent them on 1/1 and they buy a house on 9/1, I am working for them the entire time in ways that are hard to show as “hours” for them and even more difficult to explain the how and why. It would take more hours to explain that than to do it. :)

    Same with sellers…if we don’t work many hours knowing the market…we couldn’t walk in cold with a price and strategy. From the moment someone calls me saying they are going to list their house, I start working for them. If they list it 3 months later (and that happens often) I have already been working for 3 months on many things related to the listing of that house.

    It doesn’t start the day you make an offer or the day you list your house, unless you pick an agent at the last second, and most people don’t do that.

  33. 33

    By Jonness @ 31:

    Well, from an outsider’s prospective, that’s my take. But boy have I met a lot of screw ball agents with a get rich quick scheme built upon the premise of screwing their clients to tears. I suspect, as Kary once alluded to, that these types typically don’t last because being a successful agent depends upon personal recommendations and repeat sales. If so, I take it RE has a very high personnel turn over rate.

    I don’t recall saying that, but I don’t totally disagree.

    I might have referenced something like there being two types of agents. Those who get clients from referrals and those who get clients through advertising and such. The latter would more likely be the type you describe as being more likely to screw their clients. The next client won’t know what they did to the prior clients, because their only knowledge of the agent is from the advertising.

    I did just this week reference buyers’ agents not being able to limit their clients to listings from this one firm or brand name. That’s related more to just being unlikely to find proper listings for the client, sort of like if an agent decided to only show their clients houses painted blue.

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