Bruss Shoots Himself In The Foot -- Again!
For the second week in a row I've had to take exception to somthing Robert J. Bruss wrote in his wonderful column, Real Estate Mailbag, which appears in the St. Petersburg Times.
This column was headlined "Reduced Commissions Can Backfire On Seller" and it appeared in the June 3rd issue of the paper. Wow, what a great article! Bruss has captured what I and other real estate writers have been saying for a long time -- reducing sales commissions takes away the incentive for buyer's agents to show a property. I've often asked sellers who want me to cut my commission if they want their property shown first or last by the buyer's agents. I know of only one sure-fire way to get it shown first -- offer a fair commission to the buyer's agent.
So, we have a case where I agree with most, but not all, of Mr. Bruss' column. We differ on a point that Mr. Bruss and I have disagreed on in the past -- negotiating commissions. Mr. Bruss writes that he feels negotiating a lower than usual commission is justifiable in only two instances. The first of these he describes as that instance in which a "home's market value is far above typical sale prices in the community." He uses the example of a million dollar home listed for sale in a neighborhood of homes valued at $300,000. In this instance, Mr. Bruss suggests that the listing agent should "offer a reduced sales commission without (the seller) even asking."
No elaboration is given here as to why a discount should automatically be offered, other than the fact that Mr. Bruss seems to believe that high market value automatically means a reduced commission -- an opinion which is not universally shared among brokers.
I don't see any logical reason to offer a reduced commission just because a property is listed at a price that is much higher than others in the neighborhood. I know this however, if you have a property that is indeed worth $1-million in a neighborhood of much lesser valued properties, that house is likely way overbuilt for the neighborhood and is going to be very hard to sell. A home like that will demand a massive effort on the part of the listing agent to find a buyer willing to purchase an overbuilt home at anywhere near it's asking price. The amount of time, money and effort required to find a buyer for such an overbuilt (and likely overpriced) property will mean a huge outlay on the part of the agent and broker. Given that set of circumstances, why should the broker offer a discount on the sales commission? In fact, it might be necessary to increase the sales commission in order to enlist the support of other agents to show and sell the overbuilt property -- a sales strategy Mr. Bruss discusses elsewhere in this very article! A commission discount? Sorry, Mr. Bruss, but I can't see it.
Mr. Bruss suggests that the only other time a seller should ask for a commission discount is when the agent helps set the price and, after 30 days on the market, the agent brings in an offer that is far below the asking price. At that point Mr. Bruss believes the agent should discount his commission.
Hogwash! The agent's commission is a percentage of the sales price. If the property sells for far below its asking price, the agent's commission -- as measured in real dollars -- is reduced by exactly the same percentage as the seller's loss as measured against the original asking price. By reducing the commission based on a lower offer, Mr. Bruss would have agents take a double hit -- the percentage loss from the sales price PLUS some kind of additional loss by reducing the commission percentage. So, if you do what Mr. Bruss is suggesting, a low offer becomes punitive for the sales agent and listing broker since they would be penalized twice. If the seller does not like the amount contained in the buyer's offer, the seller should counter it or reject the offer outright. Oh, and what's magic about 30 days? Time on market is often a function of market conditions, not calendar days.
Bang! Another slug in the foot. Too bad. Other than these two points it was a really wonderfully thought-out article that most agents are glad to see.
This column was headlined "Reduced Commissions Can Backfire On Seller" and it appeared in the June 3rd issue of the paper. Wow, what a great article! Bruss has captured what I and other real estate writers have been saying for a long time -- reducing sales commissions takes away the incentive for buyer's agents to show a property. I've often asked sellers who want me to cut my commission if they want their property shown first or last by the buyer's agents. I know of only one sure-fire way to get it shown first -- offer a fair commission to the buyer's agent.
So, we have a case where I agree with most, but not all, of Mr. Bruss' column. We differ on a point that Mr. Bruss and I have disagreed on in the past -- negotiating commissions. Mr. Bruss writes that he feels negotiating a lower than usual commission is justifiable in only two instances. The first of these he describes as that instance in which a "home's market value is far above typical sale prices in the community." He uses the example of a million dollar home listed for sale in a neighborhood of homes valued at $300,000. In this instance, Mr. Bruss suggests that the listing agent should "offer a reduced sales commission without (the seller) even asking."
No elaboration is given here as to why a discount should automatically be offered, other than the fact that Mr. Bruss seems to believe that high market value automatically means a reduced commission -- an opinion which is not universally shared among brokers.
I don't see any logical reason to offer a reduced commission just because a property is listed at a price that is much higher than others in the neighborhood. I know this however, if you have a property that is indeed worth $1-million in a neighborhood of much lesser valued properties, that house is likely way overbuilt for the neighborhood and is going to be very hard to sell. A home like that will demand a massive effort on the part of the listing agent to find a buyer willing to purchase an overbuilt home at anywhere near it's asking price. The amount of time, money and effort required to find a buyer for such an overbuilt (and likely overpriced) property will mean a huge outlay on the part of the agent and broker. Given that set of circumstances, why should the broker offer a discount on the sales commission? In fact, it might be necessary to increase the sales commission in order to enlist the support of other agents to show and sell the overbuilt property -- a sales strategy Mr. Bruss discusses elsewhere in this very article! A commission discount? Sorry, Mr. Bruss, but I can't see it.
Mr. Bruss suggests that the only other time a seller should ask for a commission discount is when the agent helps set the price and, after 30 days on the market, the agent brings in an offer that is far below the asking price. At that point Mr. Bruss believes the agent should discount his commission.
Hogwash! The agent's commission is a percentage of the sales price. If the property sells for far below its asking price, the agent's commission -- as measured in real dollars -- is reduced by exactly the same percentage as the seller's loss as measured against the original asking price. By reducing the commission based on a lower offer, Mr. Bruss would have agents take a double hit -- the percentage loss from the sales price PLUS some kind of additional loss by reducing the commission percentage. So, if you do what Mr. Bruss is suggesting, a low offer becomes punitive for the sales agent and listing broker since they would be penalized twice. If the seller does not like the amount contained in the buyer's offer, the seller should counter it or reject the offer outright. Oh, and what's magic about 30 days? Time on market is often a function of market conditions, not calendar days.
Bang! Another slug in the foot. Too bad. Other than these two points it was a really wonderfully thought-out article that most agents are glad to see.
-30-
posted by Terry Ward at 11:19 AM
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