Real Estate Commission Distribution: Fill & Download for Free

Actually, real estate agents or brokers do compete with each other on real estate commissions.This competition cannot be emphasized enough. Federal and state regulators are extremely sensitive about any hint of real estate agents illegally colluding to set commission rates.Yes, it's not just frowned upon, but any such collusion on real estate commissions is illegal.On the Federal level, real estate agents are individually regulated by Section I of the Sherman Antitrust Act of 1890. Any criminal violation of the act is a felony punishable by imprisonment for up to ten years and fines up to $1,000,000 for individuals and $100,000,000 for corporations. Damages awarded to plaintiffs in civil actions are automatically tripled.Indeed, in multiple Federal cases (United States v. Foley and Park v. El Paso Board of Realtors), real estate agents who merely discussed the real estate commissions they would like to charge have been convicted of felonies and penalized.On the state level in California, the Business and Professions Code - Section 10147.5 prevents any written representation of real estate commissions:(a) Any printed or form agreement which initially establishes, or is intended to establish, or alters the terms of any agreement which previously established a right to compensation to be paid to a real estate licensee for the sale of residential real property containing not more than four residential units, or for the sale of a mobilehome, shall contain the following statement in not less than 10-point boldface type immediately preceding any provision of such agreement relating to compensation of the licensee:Notice:  The amount or rate of real estate commissions is not fixed by law.  They are set by each broker individually and may be negotiable between the seller and broker.(b) The amount or rate of compensation shall not be printed in any such agreement.(c) Nothing in this section shall affect the validity of a transfer of title to real property.(d) As used in this section, “alters the terms of any agreement which previously established a right to compensation” means an increase in the rate of compensation, or the amount of compensation if initially established as a flat fee, from the agreement which previously established a right to compensation.Any violation can lead to the loss of their real estate license and fines. So, real estate agents and brokers are all strongly bound to never discuss with other licensees the commission charged to their buyer or seller.Given the laws and extremely tough penalties in place, there is absolutely no way that any legitimate real estate agent would ever try to collude to set commission rates.Commissions are purely set by market demand. Sellers and buyers are free to pay however little they like. Sometimes they prize the selling skills of a particular real estate agent and offer to pay a 7–10% commission. Other times they think they already know what they’re doing and might pay only a few hundred dollars commission or nothing at all. It’s a totally free market and all commissions are based on whatever the client wants to pay.Since real estate agents are prohibited from discussing what they charge to clients, most have no idea what their competitors are charging and are in the dark when dealing with a client. They can’t say “if real estate agent A is charging X%, then I’ll charge 1/2X%” since they won’t know the competition. Real estate agents have to take a wild guess based on what they can afford to charge and hope they are competitive. The client is in control and can benefit from his superior market knowledge over real estate agents.Of course, given the nature of random distributions in a free market environment, there will be a median where commission rates reach an equilibrium or market clearing rate and most deals would group around that rate. At that point, real estate agents in that market are able to deliver their services and still survive financially. That median commission rate shifts from market to market, even between different cities within an area, say the Bay Area.

Real estate can be a fruitful option for people looking to build wealth. There is a wide variety of options for people who want to capitalize on the opportunities that present themselves in the real estate market. Here are some of the best ways to invest in real estate:1. MAKE A LONG-TERM INVESTMENTReal estate prices will only skyrocket due to simple supply and demand principles as populations increase. Hence if you’re looking to invest long term and seek exponential growth on your return, hold onto the property for a long time.2. MAKE A SHORT-TERM INVESTMENTRenovate unused houses, apartments, office and factory places and you can easily resell them for decent profits. This will require some time and effort alongside the ability to find the right customers and excellent negotiations skills.3. RENTAL PROPERTIESRental properties can bring a consistent passive income. However, one must be a good negotiator, must be willing to undergo the legal hassle and be prepared for vacant periods.4. REAL ESTATE INVESTMENT GROUPS (REIGs)One needs some degree of a financial cushion in this field. REIGs operate like small mutual funds as they invest in rental properties. A company buys or builds a set of apartment buildings, then allows investors to purchase them through the company, thereby joining the group. You can collect rents while the company manages the maintenance requirements and pockets its commissions.5. REAL ESTATE INVESTMENT TRUSTS (REITs)REITs operate like mutual funds but here investments are made in income properties and investors are paid regular dividends. The trust buys and operates properties with investors’ money and the profit is distributed back to the investors.I hope that my answer provided some value to the reader. Please follow me for more on market, finance and economics.

Thanks for the question!In a nutshell:Vast amounts of money were invested in real estate assets or loans after the 1997 Asian financial crisis (which led to foreign inflows) and the burst of the dotcom bubble in 2000-2002 (which led to Fed target rate cuts); let's stick to safe yield-generating investments!Real estate prices began to increase at a fast pace (1997-2006), thus attracting more and more speculation; after all, land is fixed and population is growing so prices can only go up, right? plus look at all the money Joe next door made flipping land in Florida: if he can do it, so can I!Loans were made on aggressive terms (>100% LTV, adjustable rate mortgages with low initial payments and subsequent step-ups) to unworthy borrowers (insufficent cash flows) as mortgage lenders competed for market share; after all, real estate prices keep increasing so the borrowers will be able to refinance their loans down the line, right? Plus, as long as I'm getting my commission and can distribute the mortgage loan to someone else, who cares right?These loans were often bought by investment banks and sold (by the hundreds) to special purpose vehicles financed with borrowed money (90% LTV), the latter being insured against defaults by insurance companies (via credit default swaps) and vetted by rating agencies (who gave their AAA blessing to senior tranches); after all, not all the loans will default at the same time so we are protected by diversification, right?Once there were no one else to turn to, prices started to decline (Q2-2006)Borrowers began to have difficulties paying the step-up rates and ultimately defaulted, their property was foreclosed and put for sale, which compressed asset prices and caused more defaults; hang on, I though real estate prices could only go up?With so much vacant property for sale, the construction industry nosedived (2006-2010); ouchFinancial institutions who issued, bought (often with borrowed money) or insured these loans went into trouble and some went bust because their peers would not lend them to refinance their own liabilities; hang on, weren't these loans supposed to be diversified? weren't insurers supposed to insure us against defaults? aren't banks supposed to be supervised?The Fed had to step in as a lender of last resort and some companies were but nationalized; really?The credit market froze, consumers and corporations started to panic and cut on their spending and hiring plans, which caused GDP to decrease, unemployment to increase (2007-09) and the stock market to collapse (-50% from its peak in 2007 to its trough in 2009); this is starting to sound like 1929 all over again...Unemployment benefits skyrocketed, causing budget deficits and public debt/GDP to soar, so much so that rating agencies and investors became worried, and many sovereign issuers lost their golden AAA status; hang on, is this even possible? aren't sovereign bonds supposed to be "risk-free"?And so on and so forth, until things started to stabilize again following massive government and central bank intervention (until the next crisis that is...)For further reference see:http://www.uvu.edu/woodbury/docs/summaryoftheprimarycauseofthehousingbubble.pdfFull Timeline