WHY A LOWER COMMISSION NETS YOU LESS MONEY… NOT MORE!
With an increasing amount of discount brokers representing sellers in today’s real estate market, a practice known as “sell-to-the-commission” has been springing up.
When these discount brokers guarantee a lower cost for selling the house, it results in lower commissions for agents, sometimes so low that Realtors will purposefully avoid showing the properties to their clients.
Both buyers and sellers can wind up confused and frustrated, never a recipe for good relations between Realtors and their clients. More buyers and sellers should understand the importance of a fair commission, especially if they want to enjoy a timely and productive real estate transaction.
By the time you are done reading I am going to answer these questions for you:
Will lowering my real estate agents commission save me money?
Will a lower commission make my home harder to sell?
Will I sell my home for less money with a lower commission?
Will offering a lower commission hurt my home sale?
The question of why a real estate commission matters should become crystal clear for you!
Understanding The Real Estate Commission Split
In the average home sale, there will be a certain percentage that goes towards commission. If there is a commission of 6%, this amount will usually be split equally between the buyer’s agent and the seller’s agent.
Although the split can vary depending on the people involved and the deal that is decided upon, you can generally expect the split to be equitable. A fair split would look like 2.5% to the buyer’s agent and 3.2% to the seller’s agent. But with discount brokers, the split is not always as fair as it should be.
With a discount broker, the seller is told that he or she will have to pay a lower fee or commission because the discount broker is offering a great deal. Often what is actually happening is that the buyer’s agent is being shorted on the commission split.
With a discount broker, it may look more like 2.5% to the seller’s agent and only 2% to the buyer’s agent, or 2% to the seller’s agent and 2.5% to the buyer’s agent. Discounted commissions don’t necessarily have to come solely from discount brokerage companies. Any agent working for any company can set a commission structure less than what the market is accustomed to seeing whatever that may be.
I say whatever that may be because commissions are never fixed. Commissions are always negotiable but that does not mean it is prudent to discount the compensation you are offering to Realtors.
The Negative Consequences Of a Lower Commission
When you are trying to sell your house, you naturally want to walk away with as much money as possible. Who wouldn’t? But it is important to understand that in real estate, just like in everything else, you really do get what you pay for.
The more that your discount broker shorts the buyer’s agent on your home sale, the less likely that agent is to show his or her client your home. You are creating ill will in the pool of buyer’s agents, and this ill will can have disastrous effects on your home sale.
Worst of all, you may not even be aware that any of this is going on. You may just be wondering why there is no one coming to look at your house.
The discount broker that looks so appealing initially may not be the best choice if you really want to sell your home – especially if you want to sell within a reasonable time frame, and for a price that you can be happy with.
Every potential buyer that is directed away from your home is a potential sale that is lost. Homes that are listed on the market can also develop a negative reputation, one that will be picked up on by all the Realtors and buyers in the area.
If your home develops a negative stigma, you may wait months before its sells. You may also wind up having to take far less than you initially expected.
This is why we mention all the time that overpricing leads to extended days on market which can crush your ability to get top dollar for your home.
You’re Not Really Saving Money
What many sellers fail to understand is you are not really saving money when you have a lower commission than all of the other homes on the market you are competing with.
Here is an example of what I mean.
Your home is going on the market for $500,000. You have interviewed three agents and two of them tell you that they charge a 6% commission.
You ask these two agents if they will lower the commission and they say no. The third agent says they will only charge you 4%. In your mind you are probably thinking I just saved myself $5000.
Here is why you are wrong. The agent you have listed the home with is offering a discounted fee to the buyer’s agent. Or, they are cutting their own commission. If they to this, they are not giving you the exposure you need or spending money on marketing your property. They cannot afford to. They list it… and then forget it, hoping another agent will find it and sell it.
Keep in mind that every home you are competing against in your market the buyer’s agent is getting 2.5 – 2.8%. Which house do you think a buyer’s agent does not want to sell? Ding, ding, ding – if you said yours you are 100 percent correct. It may not seem like much but a difference of $2500 to an agent can be significant.
All of a sudden, your home will have problems you never knew existed.
If you think this is awful and should never happen, I agree with you completely. Unfortunately, it does happen. So, when you think you are saving $5000 you are actually not.
When it comes time to be offering advice on what to offer on your home what do you think these agents are telling their buyers? If you guessed your home is priced too high, then you should be hearing those bells ringing again.
If you want to sell your home for the most money, you want buyers’ agents to be thrilled they are selling your property.
Buyer Agent Code of Ethics
You may be thinking to yourself that it is not right that an agent should be able to steer a buyer away from a property because they are unhappy about a low commission.
Shouldn’t a buyer’s agent be looking out of the interests of their client no matter what? An agent should not be putting their own pocketbook before the interests of their client, should they?
The answer to these questions of course is YES!!!
Realtors should always put their clients’ interests ahead of their own. Exceptional Realtors follow the real estate code of ethics. Remember however, we are talking about the real world here and some agents are NOT REALTORS! Be sure and ask if they are.
The Double Mistake
How many exceptional doctors do you know that discount their rates?
How about the local lawyer?
If anyone of these people are worth hiring, I am quite sure they don’t have a placard on the door saying they are offering discounts. Why? They don’t have to!
Those that are outstanding in their field DO NOT DISCOUNT because there is no need to do so! People want to work with them because of their fantastic skill set and abilities.
When you hire a real estate agent who is willing to discount their fees at the of a hat do you really think you are getting one of the best? More often than not when you choose an agent because of their willingness to discount a commission you have made a several mistakes.
Being a real estate agent for nearly forty-one years, I can tell your there are some outstanding agents. There are also those that should not be in our industry.
Agents May Steer Clear Of Your Home
The problem of discounted commissions has become widespread enough that it has made the news, with real estate agents talking openly about how some listings are avoided due to a bad commission split.
Discussions between Realtors and interviews with them have exposed the hard realities of the real estate industry, and the sometimes complicated way that Realtor standards and ethics meet up with the real world need to get paid for the work you do.
There are always good and bad examples in every industry, and real estate is no exception.
As previously mentioned, other Realtors may show the home with discounted commissions, but they may talk poorly about the house, playing up the negative aspects of the property in hopes of encouraging their client to look elsewhere – at homes where they can expect a decent commission.
A lot of work goes into being a good Realtor. A quality agent can easily spend 50 to 60 hours a week serving his or her clients. While the numbers provided above may not seem drastic at first glance, that half a percentage point comes out to 20% of the total commission for the agent, commission that may be split among several agents.
More importantly, the figures listed above were just for demonstration purposes. Often the split can be even more drastically skewed, leaving the agent working for half pay or worse.
Do real estate agents get paid well – yes, they sure do!
The problem with the real estate industry is the low barrier to entry.
Take a test, pass it and get hired – you are now a real estate agent. It should not be this easy when you are talking about representing many people’s largest asset. This is the reality.
What many fail to understand is that the average real estate agent makes a poverty level income. This is because 94% of the business is done by 6% of the agents.
Do your research. Look at the market and see what’s out there for sale and how long it’s been on the market. If it has been there for a while, there is a reason.