The commission paid to the Real Estate agent is a severe amount of money and a concern in any transaction involving the sale of Real Estate. Where did this six percent commission come from?
The idea of a 6% Real Estate commission being paid to the agent originated during the 1940s when local Real Estate Boards openly engaged in price-fixing to establish a standard rate. This process was an out-and-out case of an unfair practice, but the 1940s was when the country’s attention was directed to severe external matters, and the idea took hold and spread quickly through the industry.
In the early 1950s, the Supreme Court ruled that an established 6% commission was illegal. Rather than open up commissions to a more competitive and free-market system, the Real Estate Boards merely shifted gears with a bit of fancy linguistic footwork and began to call the 6% commission the “suggested” amount. During the 1950s and 1960s, they managed to get away with this practice without much trouble as most real estate agents complied with the suggestion.
In the 1970’s lawsuits against the Real Estate Boards effectively put the skids on this practice. The Real Estate agent’s commissions were opened to competition without the Boards either being able to mandate or even suggest 6% as the carved-into-stone rate. However, the rate did not alter much following these court cases. Although the rate may not have been carved into stone, it was pretty much established in the Real Estate market as a standard.
Generally, competitive markets benefit consumers. As long as someone is willing to offer a discounted rate, it would seem that the consumer stood to save money. However, the proponents of a standard 6% rate commission point to such things as health care to argue that the standard rate may be helping the consumer by holding the commission down to 6% rather than propping it up to that level. Although health care costs are not regulated, the general trend has been straight up the charts.
Real Estate agents would be quick to point out that if you were to take a close look at just about any service or product being offered or sold in the 1940s, you would find a severe increase in cost to the consumer, except for Real Estate commissions which are still right around 6%. The amount paid to the agents has increased greatldramaticallyy because the value of the sold property has increased. Today, the internet has been responsible for a few chips in the rock of the 6% commission by offering some straight free or reduced rate services that allow the sellers to list their properties. The results are still mixed, and the 6% commission is still the standard.
by Raynor James