Home Selling in 06405>Question Details

stevenlefkow…, Home Seller in 06405

Can I incentivize my realtor by offering one commission rate at or below a certain selling price, and a second higher rate above that price?

Asked by stevenlefkowitz, 06405 Mon Nov 11, 2013

For example, say I want to sell my house for more than $350K. I offer a fixed 6% commission for a sale up to 350K, and (say) a 20% commission for every dollar above $350K. If the house sells for $425K, at 6% the realtor would earn .06 x (425K-350K) = $4,500 above selling it at $350K. If the house sells for the same with a 20% commission above $350K, the realtor would earn
.20 x (425K - 350K) = $15,000.

This would be a strong incentive to work for a higher price.

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Awesome volley. Thanks Steve. You have apparently struck a chord with some awesome pros in the trenches. Remember that buyers and bank-ordered appraisals determine fair market value. Also, upon the MLS that I am a participant of, there is only 1 co-brokered commission amount advertised. Whatever it is that you decide to do, make sure that you have clearly communicated your instructions to your listing agent as to how total commissions be shared with the buyer's broker. Lastly, a fast nickel most often beats a slow dime....
1 vote Thank Flag Link Thu Dec 12, 2013
Steven, you have received great responses already. There's very little I can add..but that's never stopped me before.
Scott started correctly in suggesting you are seeing the objective incorrectly.
In your scenario, if your house is worth $300,000, the agent must assess how to allow you to live in your delusion and make money as a result of their effort. (HINT: in won[t be through selling YOUR house.) There are ways to sell an OVERPRICED house, but you do not reveal those conditions exist or your willingness to adapt. Quite to the contrary, you seem very non-adaptable. Which compels the real estate professional to assess how they can make money or at least not lose money engaging is a arrangement that can not succeed.
You need to ask yourself, "Do you want to sell your house?"
If you do want to sell your house, your REALTOR can get the the highest offer reflective of the location and condition of your home. The price and incentives will determine HOW FAST it will sell, not how much. Since there appears to be no motivation to achieve a quick sale, you will need to listen to your professional regarding the situation most suitable for the outcome you describe, selling an OVERPRICED house. However, for a professional to invest the dollars time and resources to help you, they must have some level of TRUST you will honor the agreement. Why? Because the opportunity exists for the professional to make LOTS of compensation, selling an overpriced house,..and you won't like it!
Summarized: Your incentive will be irrelevant. A multi-dimensional agent will deliver a solution and will be compensated...regardless of what you attempt to impose. You should abandon being clever and focus on the outcome...'Do you want to sell your house?" If you DO want to sell your home, don't make the mistake most sellers make. Let the 'DATA' direct your actions.
1 vote Thank Flag Link Thu Dec 12, 2013
Hi everyone and thanks for your responses to my question. I certainly get the message that a tiered commission rate would not be a useful incentive.

I'd like to comment a bit on the majority of the responses. First, any commission based on a percentage of the sale is fundamentally incentivized by the house's selling price. Otherwise, all commissions would be fixed-fee, unrelated to the selling price. While not a broker, I don't see much of a difference in the amount of work or outlay needed to sell a $250K house compared to a $500K house. Second, payments tied to performance above a certain benchmark level are very common in business-to-business transactions. For example, you might pay supplier more for delivering ahead of schedule, either by a lump sum bonus, or a higher item price (which more resembles a tiered commission). I don't really see why real estate seems so different than other sales transactions.

Anyway, thanks again everyone, and enjoy the holidays!
0 votes Thank Flag Link Fri Dec 13, 2013
you too!
Flag Fri Dec 13, 2013
Your idea will not work well. The only way that I see it even making sense is if the listing agent THEMSELVES wanted to buy the house and then use the money brought in by the commission to apply to the down payment in order to engineer a creative "no-money-down" purchase. Obviously, this isn't going to be how this plays out.

Even the idea of offering a bonus to the buyer's agent in hope that they will highlight your property more favorably in discussions with their clients seems to be a bit suspect. It may play a factor, but it really depends on the agent. Myself, I never even pay attention to things like that. I simply try to help my buyers find the BEST house that will be perfect for them and their family (if they have one) and I let the money worry about itself. I will, at times, ask a buyer to sign a buyer's agency agreement which specifies what my minimum commission will be at closing...but that's about as far as I go with worrying about money when working with a buyer.

Keeping clients happy is SO much more important to the agent in it for the long haul. Referrals and repeat business over the course of a 30-year career carry greater weight than the amount of commission on one particular deal.

Think about what you're hoping to do in the light of buying gold. Right now the big price of gold is $1,217.50 per ounce. Now let's say you have an ounce of gold and you have a gold-selling agent. You polish the gold, tell your agent about all the good points, and then tell him to sell it for $1,300.

Do you think that the gold-selling agent is going to be able to sell it for $1,300 when he walks into the bazaar of gold dealers? Of course not. It doesn't matter if the agent decides polish your gold ounce so it shines like the sun, has fancy brochures made up in full color, has a complete website created dedicated to just your gold ounce telling the story of where it was mined, how it was fashioned/melted/molded with the greatest of care to bring the highest quality gold ounce to them...the discerning gold buyer.

None of that is going to matter. Now your gold agent might go around telling the story again and again for months and months and then, BINGO it sells next June for $1,300 and you feel justified. But what REALLY happened?

I'll tell you what happened. People didn't "realize" the superior value of your ounce of gold...the price of gold as an entire market rose and now your gold ounce is worth $1,300.

The same goes with homes. Your home has a TODAY value. As long as prices continue to increase, the home will sell at the price you WANT - someday. Maybe in a year...maybe in five years. But the today price is probably less than what you want in which case you'll "buy back" your home for the higher price that you have in your mind. You've become the buyer, not the seller.

There is only ONE reason why an agent would take an overpriced listing. Because they hope that the sign in the yard and the picture on Trulia will attract phone call leads which will eventually turn into harvested buyer clients for a DIFFERENT home and an eventual paycheck. Even good agents do this. Great agents do not. They don't take overpriced listings because they have enough clients coming to them that they don't have to. There is a lot of headache in dealing with a seller for 6 months on a home that you'll never sell just so you can get buyer leads from it and sell those buyers something else. Great agents don't want to deal with that kind of stress. They let the less-experienced agents do that.

Anyway...this ran long. If you ARE going to incentivize anyone...incentivize the BUYER. Offer a free 60" HDTV to the buyer at closing or something like that. Offer a SECOND TV if they submit their offer by a certain date. This creates a sense of urgency...but it won't make a $350k house worth $360k much less $400k.
Web Reference: http://plymouthhomes.tv/
0 votes Thank Flag Link Fri Dec 13, 2013
Realtors don't set market pricing nor do sellers, the only one who will ever set market price is a ready willing and able Buyer. What a seller "wants" is irrelevant. The best agents are adept at analyzing market data so that their clients clearly understand what the market value of a property is. Then if their the seller they price accordingly and if their the buyer they offer accordingly.

I hate to disappoint you but what a seller has invested in a property or what they "need" have never mattered and never will.

I've always counselled my sellers to not waste their money trying to incentivize a Realtor. Honestly only the poorest Realtors worry about the specific commission any property is offering, the best generally don't worry about it. Incentives should be geared to the buyer as time is money and getting it sold quickly at whatever the market is bearing at any given time is the objective.
0 votes Thank Flag Link Fri Dec 13, 2013
I would have to agree with Mack and Scott.....an agent might agree with this scheme but it's doubtful their broker would give their nod.......

0 votes Thank Flag Link Fri Dec 13, 2013
Actually it is NOT. You are looking at this wrong. The incentive for any agent is to sell the home quickly and at the best obtainable price. Your effort should be on pricing it correctly at current market value, not above as buyers are not paying more than market value in this market. Ask too high and no one looks at your house. You should be choosing the best agent who local, full time and experienced in your area.
0 votes Thank Flag Link Thu Dec 12, 2013
Hi Steven,

If I were putting my home up for sale, I would definitely use a bonus to attract buyers, but the bonus would be for the selling agent, not my listing agent.

Everything about human nature has taught me that when someone sees the monetary incentive being dangled in front of their eyes, they will try oh-so much harder to make the deal happen.

The BEST way for your home to jump out to selling agents is to have it priced RIGHT, make sure it shows well, and that you bonus the selling agent.


Scott Miller
Realty Associates
Boca Raton, FL
0 votes Thank Flag Link Thu Dec 12, 2013
Flag Thu Dec 12, 2013
Well, unless you have a cash buyer, your house will need to be appraised by a lender, and that's why agents have to research carefully comps before suggesting a listing price, and do their best to negotiate near that price. The fact that you would like to sell your house for a certain price, doesn't mean that buyers wil pay that price. A realtor doesn't earn anything if the house doesn't sell. I suggest you offer to pay up front a substantial amount towards advertising, or have your home professionally staged, or put the money towards clearing a pest report.
0 votes Thank Flag Link Wed Dec 11, 2013

what is being described is not, imo, a "net listing" scenario (which means the seller, for example, says: "I want $450,000 for my house - you, the agent, can keep anything above that" - that's a net listing).

What Steven is suggesting is what we call a "variable rate" commission structure......it is perfectly legal here (albeit a bit complicated).
0 votes Thank Flag Link Wed Dec 11, 2013
Hi Steven

Your agent has a big enough incentive - getting your home sold and earning the agreed-upon commission.

Offering a higher amount (percentage) will not entice or enable him to force a buyer to pay more than they are willing to pay.

The topic of offering a "bonus" to a selling (or listing) agent (which this basically is) has been discussed often online on the various real estate websites........my feeling is - if anything - offer an incentive to the buyer instead!!

Best wishes.........
0 votes Thank Flag Link Wed Dec 11, 2013
Gentleman opined about a net listing. Your proposal does not constitute a net listing as explained.

The simplest solution is always to pay for an appraisal. It will defend your bottom line in negotiations and allow you to identify if your goals are realistic or not...Elaborate commission schedules usually are reflective of a seller lacking confidence in their listing agent to already be aligned with their client for the same common goal of selling for the most the market can bear.

Interviewing several agents is another solution towards selling for the most money. The agent/broker/agency blend that will net you the greatest exposure, in theory should yield your highest sale.

Merry Chritsmas
0 votes Thank Flag Link Wed Dec 11, 2013
Net listings are illegal in most states, Steven, and I suspect that few experienced agents would bother with someone who suggested such a scheme.

I understand the theory, and it makes a lot of sense, but it's not likely to fly.

All the best,
0 votes Thank Flag Link Thu Nov 14, 2013
Keep in mind in CT we have seller's agents representing their client's best inerests and buyer's agents representing their client's best interests. Your listing agent will recommend a price or price range at wich he/she believes your home will sell. A buyer's agent will want to negotiate for his/her client. We are not selling widgets...a lot of emotion goes into the sale on both sides. Your formula will not get you the desired results. A good agent will work to get you the best price he/she can at a reasonable commission which is negotiable. I'd be happy to dicuss this further with you.
0 votes Thank Flag Link Thu Nov 14, 2013
After reading the other answers I know that's not what you wanted to hear. But they all bring valid points to the table. I want to refer back to Minna's comment about reallocating any extra funds you are willing to expend. There are several things that contribute to a successful sale and two of them are a correct market price and how well the home is marketed. The latter entails expenses that come out of the agent's pocket. What I find with a good many sellers is they are looking for the lowest commission rate to pay out, especially when they may be under water in relation to what the house is now worth vs. what they paid for it. However, where the difference in the rate can make an impact is developing a market plan to sell the property but getting a bit more in commission to actually fund the plan. What we are talking about in general is maybe 5% going up to 5.5% or 6%. In CT there is no such thing as a standard commission rate, but agents don't want to price themselves out of obtaining the listing. Afterall, we are usually competing with 2-4 other agents for your business. You appear to have a grasp of sales and marketing based on your willingness to explore the options you proposed. So I think you understand that the lowest commission proposed is not always the best route to go. The less an agent has to work with, the less likely he or she is going to be willing to do the extra things that will help sell faster and at or close to list price. One final comment. When a home is priced competitively, shows well and has been promoted professionally, more potential buyers will want to see it and potentially put in offers. it is not unreasonable to see that scenario develop into a "best and final" offer from the interested buyers, which in turn ends up bringing a final sale price above the original asking price. Doing things right and doing the right things will reward the astute seller. If I can be of service, please don't hesitate to contact me. Best of luck.
0 votes Thank Flag Link Wed Nov 13, 2013
Any Realtor's main goal is to get you the most for the home...the extra commission wont make the higher price any more attainable. However, if you're willing to spend more to get more, a good Realtor will be able to tell you how to allocate those extra funds to improve the showability of the home so it will sell for more and more quickly.
Web Reference: http://www.homesbyminna.com
0 votes Thank Flag Link Mon Nov 11, 2013
Since commission is negotiable you can discuss any option with the REALTOR, but please keep in mind as Florence mentioned, it is up to the buyer how much is willing to spend on a particular property. Pushing for higher price to get a higher commission, in my opinion does not work. I personally do not count my commission, I try to negotiate for my clients/sellers the highest price, I don't focus my efforts on how much I can lose or gain on my commission. I want to provide a good service, so my clients are satisfied and as of this result- they will refer me to their friends, family or use my services in the future. Of course, I am getting paid for that, but trust me I don't calculate how much I could gain or I lost.
Good luck!
0 votes Thank Flag Link Mon Nov 11, 2013
Spot on! Some realtors DO focus on the commission, and it's a HUGE mistake. Focus on the service you provide and your business will thrive...the compensation will naturally follow.
Flag Fri Dec 13, 2013
A home is worth what a purchaser is willing to pay for it. That is why we do market evaluaions
for you, to try to get it listed for best price possible. Every Realtor who has a listing wants to sell it quickly for the best price......the more you get, well we get a bit more in the commission. We strive to please our clients.
I would be happy to discuss this with you directly.
Florence Michaud Wm. Raveis Real Estate
0 votes Thank Flag Link Mon Nov 11, 2013
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