The traditional real estate has been facing a continuing onslaught by price innovators such as redfin. I used a traditional agent when I purchased my condo in 2002. I’m not sure I would do so again. 6% is a lot to pay. Typically, the seller’s agent shares half of the 6% with the buyer’s agent.

As a buyer of real estate, we often ignore the transaction cost. We don’t see that cost directly, and passively accept that the seller is “paying” for it. However, like any other surcharge, it really is the buyer paying. The seller is only handing over money that has come from the buyer. There’s no question a good portion of that 6% commission could be passed back to the buyer.

Redfin.com undercuts competitors by charging a flat $3,000 fee to sell a house. Then, you use them to buy a home, Redfin.com will give back to you most of the 3% they, the buyer’s agent, would typically receive from the sale. Their business model depends on a higher transaction volume, and lower levels of service. This business model appeals in particular to prospective buyers such as myself. I tend to scour online and do my own research to look for real estate. I don’t need or usually want an agent to accompany me on a tour of a home. I do however want an agent to help me close a deal. I appreciate the assistance in looking through paperwork, and knowing all the steps that need to take place. That experience my agent brought on my first purchase was invaluable.

Of course, traditional real estate agents are not happy with the assault on their livelihood. The National Associations of Realtors has made attempts to keep the Multiple Listing Service (MLS) from being used by realtors that would undercut the 6% commission. There is currently a case at the Department of Justice accusing the Association of anti-competitive practices. The MLS is effectively a monopoly on house listings. While there are no natural barriers to prevent competing real estate agents from starting something similar to MLS, the dominance and wide spread use of MLS make it near impossible to successfully market real estate without it.

In the long run, I do believe that the traditional 6% commission will go the way of the dinosaur. This is not to say that traditional real estate agents or high commissions will disappear. Rather, I believe that agents will become both more competitive in pricing, and be more creative in how they price. The fact is, some houses are a lot of work to sell, and others not so much. Agents should be compensated for the amount of work they actually need to put into a sale, and not just some simple percentage of the cost of the house. I for one think that staging, which is currently very popular, will become a much more important part of the real estate agent’s set of services and pay structure.