The six percent solution

Over the last decade or two, many neighborhoods have seen the price of homes increase by 100 to 1000%. Because real estate agents charge a commission based on selling price, this means that many agents make ten times as much as they used to for selling a house.

Obviously, they’re not doing ten times as much work.

Sooner or later, in any business that works on percentages, things change and the commissions come under pressure. You can be defensive about this or you can see it as an opportunity.

One broker in Massachusetts now works by the hour (Beating the Realtor commission system). If I were a broker, I’d take the increased cash flow and spend it as fast as I could. I’d fundamentally change what I offer and include a wide range of free services–from a free paint job to help sell the house to a new big screen TV for the buyer or the seller. I’d hire assistants and build a permission-based computer system. I’d realize that no industry is static, especially one where the rates go up by a factor of ten in just a short time.

Obviously, this is about more than just real estate. If you work by the hour, what would happened if you charged a commission instead? (PR folks? Lawyers?) What happens to the sales process when you flip from success-based pricing to time-based? Or the other way around?