There are several factors why offering 6% to your listing agent isnâ€™t expected, but encouraged.
While it's not expected for sellers to offer 6% commission, majority of motivated sellers agree to those terms. I'll try to explain why thatâ€™s so.
Properties in a down market take longer to sell. Without quoting any numbers, a very significant percentage of listings will expire without selling in the first six months of the exclusive term (typical time period for a listing agreement). Reasons for that may be due to being over priced, poor showing conditions or lack of marketing exposure on the brokerâ€™s side.
You now have a broker who spent money marketing sellerâ€™s apartment, seller refused to lower their selling price and cooperate, six months expire and you have someone who spent several hundred or thousands of dollars in marketing money with nothing to show for.
In an Up market, buyers came in droves, people were out bided and little work went into marketing. Complete opposite in todayâ€™s market place. There are very few qualified buyers and every broker is trying to find them.
There are many types of brokers. Today I want to concentrate on just two. Those who are honest and will tell you what you need to hear, and those who will tell you what you want to hear and â€œbuyer your listingâ€ with a seductive suggested price, get you all psyched that they can deliver and a month later when they can, they will chase you for price reductions.
Brokers who value their time and money will not take over priced listings, at least not without agreeing with you first that if in a certain amount of time there is little activity you both agree to offer an incentive to buyers or reduce the price.
What do we do now thatâ€™s different? We make more calls, we spend more marketing money to spread over wider advertising channels, we have to be more creative, we have to schedule more showings, host more open houses, , follow up more, review the market more frequent, better qualify potential buyers, review comps among dozens of other things which land themselves this bag of tricks.
You want to offer an incentive to a buyerâ€™s broker. While itâ€™s not always fair, brokers are the ones who choose to show one property over the other. The thing sellers have to understand is this. 6% which you may or may not want to offer doesnâ€™t equate to 6% in our pockets. Like Joseph stated, 90% of transactions in New York are co-broked. What does that mean?
When two brokers are involved in a sales transaction, that 6% commission gets divided 50/50 between both parties. This leaves your broker with 3% and that 3% further gets divided between them and their Broker or Firm. Letâ€™s assume itâ€™s a 50% split. We are now left with only 1.5%. Out of the remaining 1.5% we have to pay taxes, we budget our marketing dollars and we support our families. At the end of the day if we are lucky, that 6% commission that some sellers challenge us on is actually only 1% give or take of the entire take.
Is it fair to pay your broker 6%? I say it is, but itâ€™s ultimately up to you to make that decision and negotiate with your broker.
I would even suggest the following. Broker can agree to reduce their commission if they sell your apartment in the first month or two, and you can increase their commission the longer it takes for them to market. Might be a fair trade off?
Thatâ€™s my take on it and we can agree or agree to disagree.
All the best,
Commission is negotiable with all brokerages. There are also some offices that do not offer full service that you might consider.
Look at all sides of the issue, and make a decision that you feel good about.
While my personal opinon is that it's not in your best interest...it's not unheard of for a property owner to sell their home themselves. If you go this route, be very careful not to over price your home.
I've noticed that sellers who demand full service from their broker also want them to discount their services. These two concepts are mutually exclusive to me. It'sbetter to know you have a broker you're comfortable with and that you trust to do the best job by getting the property sold quickly and for the highest dollar amount.
Thanks for the question and thanks to Debbie for mentioning the Anti Trust Laws that prohibit discussions between real estate professionals about commission amounts. She has saved me some typing time.
While I won't address the commission amount, I would like to remind you that it's a percentage. I imagine part of the reason you're asking this question is because you've experienced a drop in your property's value over the past year or so. Please keep in mind that this means the end dollar amount of the commission also goes down along with the value or potential selling price of the property.
Unfortunately, advertising and other costs that the agent must bear to promote listings have not dropped at all. Some of the advertising mediums have actually increased their charges in spite of the market or because of the economy. Some agents (and other advertisers) have had to cut back on the amount they spend on advertising. One problem feeds another because, with fewer advertisers, the company supplying the mediums make less money. Less money for them means they have to charge more for their services. When they charge higher prices, more people can't afford to advertise with them.
Rising costs to market listings contributes to the answer to your next question. "What are brokers doing differently now then when the market was better?"
Because of the market conditions, agents have to advertise and market properties longer...because it takes longer to sell them. The longer a property stays on the market, the more "ad time" it requires. Now, those "ads" may be (should be) web advertising, mailings, whatever the agent finds to be successful in his/her area. (Internet always and everywhere) In addition to the amount of money spent on advertising, there are so many more things agents have to do in this market that they didn't have to do in recent years. Mortgage requirements are changing regularly. Agents need to be aware of the changes and work harder to get a buyer to the table with a mortgage intact. Buyers are nervous and reluctant to make a decision. It's up to the agent to "sell" the property and help the buyer feel comfortable making a wise choice.
Too often people discuss real estate agents' incomes without ever considering the expenses that fall onto the agents' shoulders. Many have the misconception that the listing COMPANY pays for all the advertising. They don't. I haven't even gone into the amount of time that the successful and diligent agent spends on a property. Real estate is one service profession that actually pays the service provider (the agent) less in a down market BECAUSE of the market (and the lower property prices--remember, the income is a percentage of the price--which is now lower). What many forget is that the services that the agent provides are actually MORE valuable in a down market. I was sometimes willing to reduce the commission I charged during the hot market when properties "flew off of the shelves." Depending on the property, there may have been less work required.
Yes, commissions percentages are negotiable; however, I would advise against choosing an agent based on his willingness to lower his fees. The market has done it for him. I would encourage all sellers to interview a few agents. All agents are independent contractors...running their own businesses. Look for those whose business savvy you trust. Afterall, the agent you choose is the one who will decide where to spend those marketing (commission) dollars. Like any company, if the CEO doesn't make good decisions, his company will go out of business. Successful agents have a business plan, profit and loss statements, budgets, etc. I would not feel comfortable hiring an agent who simply flies by the seat of his pants. A seller's success depends on the agent's success as a business person.
I hope the above is helpful and doesn't come across as a rambling rant to defend commissions. The truly good agent works very hard for his clients and deserves fair payment in return. I chose not to use the many cliches that I so often hear from agents trying to defend their income like: You wouldn't ask your doctor to lower his fee, or ... blah, blah, blah. I was simply trying to give a little insight into the often misunderstood and miscalculated commission.
Thanks for reading.
John R. Wuertz
Vice President--Associate Broker
The Corcoran Group
. Anti trust laws prohibit Realtors from discussing what is "customary", "usual", or "standard"...among themselves, and especially in a public forum.
Anyone who thinks it is ok to do so should check with their local bd. of realtors, or the Real Estate Commission in their state for clarification...possibly they have a knowledgeable broker who can also educate them.
There is no industry standard, and to state what one's standard is.......may influence or cause a consumer to believe they must or should pay that much for proper representation...it's a slippery slope to price fixing. No agents, in any context, should discuss specific commissions. These discussions shoud be between the consumer and the agent, not in a public forum.
For the record............On another thread, someone noted that the Dept of Justice has started to monitor social media sites, especially in regard to the above laws.
When in doubt, it is better to air on the side of caution.
Sunny- speak to a few agents, and see what they are offering as far as marketing goes...make your decision based on that, not on who is offering the lowest commission, although, the commission is something you can certainly discuss and negotiate.
The commission in any market can be negotiated. The "standard" in the Tahoe area is 5%.
This is a hard market right now. Houses need to be priced correctly to get anyone to look much less make an offer. It seems like the longer a house is on the market and the more price reductions, the lower the offers are. I will not even list a house right now if an owner wants to list it for more than the current market will allow. I spend a lot of time and money upfront with advertising, staging if necessary, and online getting the house out to the public.
I think that pricing a house correctly (what the market will allow), a big internet presence, and getting the word out to the other local agents is very important right now. Houses and neighborhoods are not selling themselves like they did a couple of years ago.
It's a lot harder to fish for buyers now that the economy has sent many of them to shore (I don't know anything about fishing, really!); the deals are more difficult to put together because the buyers that do exist aren't anywhere near as motivated as they used to be.
Let me also add that a lot of us are a little less eager to take listings now that the market is so slow, so many of us are a lot less eager to reduce our fees.
Working twice as hard, does that mean we should get 12% (laughing). No seriously, we really have to step up exposure for the property and find ways to get the house in front of people. The bottom line usually is a numbers game if it is priced right, the more people that see the listing the better the chance of selling. At least that is my opinion.
And, if it is a short sale... I cannot even begin to describe the amount of work involved to get it done! You know the old saying, walk a mile in my shoes, you would have a whole new appreciation for good Realtors.
In some areas you could have seller flat fee listings which could save your $1000's at closing if your state allows this type of service. Texas does. We offer in our practice.
At times if you were purchase a home some agents may discount listing % if you purchase another home from them. You need interview each company however keep in mind you pay for what you get.
Our flat fee service offers is no different than full service , not many agents can offer this practice. We do because our business model is extremely different than other offices in DFW area, We are top 15 offices in entire DFW area.