Some Good Advice For Home Sellers About Real Estate Commissions

Here's a story that was relayed to me recently by a real estate agent with whom I am acquainted. If you're selling a home, this is a good example of one of the key differences between selling your property with a full commission broker and using a discount broker or one of those cut-rate brokers.

My friend tells me that she was called in to talk to a couple about listing their house. The property had been on the market for six months with an agent who had given them a discount commission rate of 4%, then done nothing much more than put the property in the local MLS, put an ad in the local newspaper once, and placed a sign in the front yard. Naturally, the place did not sell, so the owner went shopping for a new agent.

As is her normal procedure, my friend presented a very comprehensive marketing agenda to promote the house and find a buyer willing to pay the highest price. The sellers reportedly loved the program and were very favorably impressed with the presentation until they asked what the selling commission would be. My friend responded that her commission rate was 7%. The seller was accustomed to paying a much lower rate and would not agree to pay the higher selling fee requested by my friend. So, they parted ways.

A few days later, as the story goes, the seller hired another agent who discounted the fee to 5%, but not before convincing the seller to reduce his price by $10,000. The original asking price on the property was $289,900, and my friend said she felt that was a good price for the house and did not intend to adjust it if she obtained the listing. So now the house is on the market for $279,900 with yet another agent who has discounted the commission.

Did the seller make a good move? Let's do the math. If the sellers had accepted the services of my friend, they would have paid a selling commission of $20,293 (7% of $289,900). The sellers have agreed to pay a selling commission with a discount broker of $13,995. So, their commission saving amounts to $6,298. And all they had to do to get that saving was reduce the value of their property by $10,000. Actually, they have a net loss at closing of $3,702.

Let's see, in order to save $6,298 in commissions, the seller had to cut the value of his property by $10,000, so he really has a net loss of $3,702. That's not something I would have done. How about you?

I've noticed something over the years -- and I have no evidence to back this up other than my own observations. When a seller hires a discount broker who will give him no appreciable marketing support for selling his house, the price of the house often seems lower than true market value. I guess that's because such agents find it easier to practically give property away than work hard to sell it for its true market value. I believe there are three reasons for this ...

1. The agents aren't any good. Possession of a real estate license does not mean the agent is good at selling real estate. Agents who aren't any good at selling real estate always seem to want to cut prices on property and are willing to cut commissions on selling fees just to get the listing. That's because they don't know how to do anything else but cut prices. They can't defend the value of the seller's property in a negotiation, but they can give the property away. They can't defend their own income when discussing the commission with the seller, so they choose to "buy the listing" by resorting to cutting their own fees. They can't give you a good marketing plan to attract buyers, so they just keep lowering the price until someone comes along and buys the house. What's sad is that this is all they know how to do. Sellers need to be careful of real estate sales people with these kinds of highly limited capabilities. Just like the example above, such agents will cost you money at the closing.
2. The agents don't do enough marketing. You get what you pay for. If you retain the services of a cut rate or discount real estate agent, you're going to get a cut rate or discounted marketing program. Marketing costs the agent money out of his personal pocket. Since the discounted selling fee means he is going to make less money, he will do less marketing. And what marketing he does do will probably be the least expensive and least effective kind. Look at it this way, when did you ever get full service at a discounted price for anything? What makes you think you'll get it from a discount real estate agent? That's just not reality.
3. The agents remove the incentive to sell your house. The commission you pay is almost always split between the listing broker and the buyer's broker. When the agent agrees to cut the commission, he is also cutting the commission for the buyer's agent. As a seller, this is like slitting your own throat with a dull knife. Slowly. Agents work solely on commission. When you reduce the amount of money the buyer's agent is going to make for selling your house, you take away the incentive to show your house. Showings are the life blood of a real estate transaction. When the commission is reduced, so are the showings. Hey, just because the listing agent is willing to reduce his commission does not mean the buyer's agent is willing to reduce his. When this happens, you get hurt because the buyer's agent simply won't show your house. Instead, he'll show his buyer other houses that offer a better financial incentive. Your house will sit unsold. That's how it works in real life.

I could go on and on about the disadvantages of using a discount or cut-rate real estate broker, but I won't. Suffice it to say that since real estate markets are softening nationwide, this is not the time to fool around with commissions.

If you're a seller, don't worry so much about how much the selling commission will be. Instead, ask yourself who is most likely to sell my house for the highest price in the shortest time?

The answer, my friend, will always be the agent who is going to do the most comprehensive marketing plan. And just like the example above, the way to net the most money from the sale of your property is to sell it for the highest price. The way to get the highest price is with the best marketing and realistic selling incentives. In other words, go with a full service, full commission market-based agent over a discounter. Financially, you'll be better off.

For more information on real estate matters in the Tampa Bay area, visit my website at www.thestpeterealestatesite.com.

-30-