Should I put the buyers comisson at 2.5% or 3%?

Asked by Kashif, Irvine, CA Mon Dec 3, 2007

My home is priced in the mid 700k. Does it make sence for me to offer the buyers agents 2.5% comission instead of the typical 3% in this market? I'm not sure how much this will impact the number and quality of offers my home will get. How sensitive are the agents to this type of decrease?

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23
Amanda Wheel…, , Irvine, CA
Tue Dec 4, 2007
BEST ANSWER
Good morning Kashif. As an agent who sells in Irvine, I can say from first hand experience that the amount of commission you are offering to the buyer's agent really does matter. Unfortunately, agents are still the primary gatekeepers for their clients in terms of the information they give them about homes on the market and their opinion about which one they should buy really matters.

In most cases, the buyer has no idea that their agent would make more money if they bought a home that is offering 3% vs. 2.5% because they do not have access to this information. As a result, I always counsel my sellers that they offer the same commission that other sellers are offering in their area.

As you will undoubtedly be competing against a number of other homes for sale in your area, you want to give your home every advantage to sell quickly and at the best price. Offering a competitive agent commission is one way to do that.

I hope this information helps. Good luck with the sale of your home!

~Amanda Wheeland
Real Estate Broker & Lawyer
Web Reference:  http://www.cinch2sell.com
1 vote
Kashif, Home Buyer, Irvine, CA
Wed Dec 5, 2007
Thanks everyone for the input.

Keith - Just put my home on the market about a week ago. I'm working with a discount broker, which I think unknowingly has made at least one local agents working for a large firm pretty upset.. The local agent farms this area on a regular basis. I think he feels like he owns the neighborhood.. I guess he doesn't like seeing sings from other firms in his area ( my home has a fair amount of marketing visibility)as far as signage is concerned). I initially contacted this local agent when interviewing a number of other people. The local agent wanted a 6% commission structure so my my wife and I ran the numbers and concluded that it was not in our best interest. to go with them. So we went with another a discount broker. When our agreement was signed, and the property was placed on the on the MLS the local agent came directly to my home to share his thoughts... ( based on the content of our discussion I'm sure he came very close to violating the Realtor code of Ethics a number of times). Among the things he discussed was that Real Estate agents don't like working with discount brokers and that I should cancel the listing agreement because they spoil the market and it will be unlikely that I'll get any offers. I haven't shared any of this info with my agent , because I don't think it will add any value plus the local agent had some valid points. The pricing structure I have now is 2.5%(to the Buyer) and 1% (listing). I'm not sure if I should increase the buyer commission percentage or offer the buyer agents a check "paid directly to agent "as an additional incentive because I realize that my discount broker has limited marketing capabilities. Regards - km
2 votes
Carrie Crowe…, Agent, Southaven, MS
Tue Dec 4, 2007
Kashif,
If my buyers were interested in your house, the commission would not be an issue for me. Would you be trying to sell FSBO with a buyers agent commission allowed? That's what I am thinking by your post.
2 votes
Sandra Carli…, Agent, Newport Beach, CA
Wed Jan 23, 2008
This isn't the market to de-incentivize the sales force. That said, 2.5% won't stop most people from showing a home. What concerns me more than what you are offering the buyer's agent is that advertising is expensive and it is financially impossible to expose your property to the most potential buyers with a 1% fee to the listing agent. What type of exposure are you really getting? This is not the market to mess with little to no exposure because in the long run, it will cost you FAR more than you think you are saving.

What is the marketing plan that you chose or had promised to you by the company you went with, agents aside? What you choose to pay a buyer's agent is only a small piece to getting your home aligned to the market.

The agent was wrong to approach you after you had listed, it is against ethics to ask you to cancel the agreement because it is interfering with a contract.
Web Reference:  http://www.OCBeachBlog.com
1 vote
Keith Sorem, Agent, Glendale, CA
Tue Dec 4, 2007
Kashif
There is a point you might be missing here. You don't mention whether your home is listed, nor how many days it's been on the market.

Assuming the reason you are asking is that you have not had any offers yet, you are probably wondering why and what you can do about it.

First, there is a lot more inventory now, than in the past. Some Realtors are still operating as thought it were 2006. In order for a home to sell in this market your Realtor should be educating you on how buyers look at prospective properties.

If your home is listed then this is not a solicitation.

MLS stats show that consistently homes that sell within the first 30 days sell closest to list price. In my MLS that means that a listing will sell for 99.4% of the list price.
However, as listings sit, the sellers may or may not agree to a price reduction. At 120 days listings are getting about 94.6% of the list price...the price at the time it sells. So if the listing has already had a price reduction, and after 120 days there should have been at least two or three, you can bet that the final list price was at least 5% less than the primary list price.

Why is that important? 90% of the time the buyer sees your home with an agent. That means that two parties need to believe that your home has value. The buyer, and their agent. You need to weigh the cost of an extra commission point (in your case $7,000) versus a a 5% or even 10% loss from your list price ($35,000-$70,000).

So in order to sell you need price, exposure, and marketing. The biggest factor is price. You, the seller, control that. Marketing you also control. If 90% of the time an agent brings the buyer, you need to know that your Realtor is marketing to other Realtors. The most cost-effective way is commission.

Good luck
Web Reference:  http://www.glencrestteam.com
1 vote
Jackie Blank…, , North County, SD
Mon Dec 3, 2007
Hi Kashif,

There's a similar post with lots of answers on this issue. take a look.
http://www.trulia.com/voices/Home_Selling/What_are_your_thou…
1 vote
Patrick Shar…, Agent, Anaheim, CA
Thu Jul 17, 2008
Kashif, the commission percentage will vary by market, but let me give you a quick example to assist you in making your decision. First of all, when I am working with a buyer, my Buyer's love seller's who discount their commission because it gives them an opportunity to get the property under market. Case in point - I closed escrow on a SFR in Anaheim 2 weeks ago. An identical home on the same street was listed with a 3% (6% total) commission while the home my client purchased was listed at 2.5% (5% total). The home listed at 2.5% took 3 times as long to sell as the home that was offering 3%. We made an offer on both. My client was able to obtain the home offering 2.5% for $354,000 compared to the home that was offering 3% which went into escrow at $405,000. More agents show properties offering 3% or more first, meaning there is more competition for those homes (if they are priced properly) which helps them sell for more. My client was able to purchase their home for $51,000 LESS than an identical home on the same block that entered escrow on the same day because the Seller wanted to save 1% of commission. 1% commission in this case was roughly $3500.
0 votes
Pearl, Home Buyer, San Francisco, CA
Tue Jul 15, 2008
2.5% would be OK as many buyers also search for homes independently through the Internet (getting emails automatically sent to them) and do not necessarily just rely on their agent. If the home is a good fit with a buyer, the agent would show the home. If they didn't and the buyer they are representing missed out, that agent will also feel wrath of the buyer they are representing. I would be upset as a buyer and my (buyers) agent didn't show the home to me because it was paying 2.5% versus 3%. That agent would be fired because they are not looking out for my interests.
0 votes
Laura Sulliv…, , Atlanta, GA
Tue Jul 15, 2008
Definitely at 3%. One of my first listings had very few showings and Im certain it was because I had the co-op commission at 2.5%. As soon as I changed the commission to 3% I saw my showings increase and the house sold shortly thereafter.
0 votes
Oc Buyer, Home Buyer, CDM
Tue Jul 15, 2008
"If you are in what would appear to be a declining market you need to at least offer 3% to the selling agent. While none of us might like it your home will be shown in direct corolation to the amount you offer the selling agent. The more you offer the more showings you get."

It absolutely turns my stomach at the number of sloppy listings. 3% and the agent can't even bother to spell and grammar check the description and post the most horrid pictures. Frankly, a vast majority of listing agents don't even merit 1% for the crap job that they do.

If the seller is obstinant and won't list for fair market, don't take the listing. If this property was listed correctly to begin, Kashif would have sold it 6 months ago for more than low $600's.
0 votes
Kashif, Home Buyer, Irvine, CA
Tue Jul 15, 2008
Yes. I figure I'll have to take the hit, because staying her to ride the market will not result in any significant gains. I also did an analysis for renting the home out, but my 'burn rate" or the amount I'm spending to live here ( interest payments and all) is far greater than the amount of equity or rent I could reasonably collect over the next few years. I'll get out now by accepting the next counter that will come in today. If all goes well then I'll try and make up some of the loss in the purchase of a new property.
0 votes
Linsey Plane…, Agent, Rancho Santa Margarita, CA
Mon Jul 14, 2008
Hi Kashif,

I feel your pain...unfortunately, it sounds like the market is speaking to you. You just may not like what it's saying. If you have 3 offers all around the same price, that's likely market value for your home. I think it's fair to say, we are really back at about 2004 pricing, so I don't think you are too far off.

Changing the brokerage fee to 4% won't necessarily bring an offer higher than market value.

The question is can you take an $80,000 loss or can you ride out the market for a few more years?
0 votes
Scott Gaertn…, Agent, Phoenix, AZ
Mon Jul 14, 2008
If you are in what would appear to be a declining market you need to at least offer 3% to the selling agent. While none of us might like it your home will be shown in direct corolation to the amount you offer the selling agent. The more you offer the more showings you get.
0 votes
Kashif, Home Buyer, Irvine, CA
Mon Jul 14, 2008
Thanks everyone for the insight it was helpful. I agree that in the big picture the commissions are only a very small factor. I just wanted to get a better understanding of what the perceptions were and how a few thousand dollars could influence the sale of a home.


My home is still listed on the market and we have just passed 100 DOM. I've dropped my price from 725k to 699k and as of June have listed in the mid 600k. I've been offering the typical 3% buyer and 2%seller from April08. Since my last price adjustment ( June ) we have seen an increase in activity. I've had only 3 real offers, during that period each around the low 600s. Ironically they all came in at the same number, which was the sale price of the home in 2004. At this rate, I will certainly be taking an 80k loss. I just countered one of those low ball offers today with mixed feelings. I guess my next step will be to increase the buyers commission to 4% and drop the price a little bit more. Hopefully it will generate some more interest and a positive outcome. Thanks again.

Kashif
0 votes
Sandra Carli…, Agent, Newport Beach, CA
Mon Jul 14, 2008
Kashif,

How did this turn out? Any offers? What's the activity on your home like?
Web Reference:  http://www.OCBeachBlog.com
0 votes
Oc Buyer, Home Buyer, CDM
Mon Jul 14, 2008
curious about outcome as well.. I've seen some REO properties where the bank is offering an ADDITIONAL bonus to the buyer's agent on top of the standard 3%. Real sellers are forced to compete with the lenders unloading all their inventory.
0 votes
Jeremy Lehman, Agent, Garden Grove, CA
Sun Jul 13, 2008
I'm curious to know how this turned out. Can you update us?
Web Reference:  http://www.LehmanHomes.net
0 votes
Daniel, , Baton Rouge, LA
Sun Jul 13, 2008
oohhh please say your using a flat fee service??

As far setting buyers commission, look at competiting properties, not only are you competiting for buyers, your also competiting for buyers agent.. Why would an ahent show your home for 2, 2.5 when he can get 3%?
0 votes
Linsey Plane…, Agent, Rancho Santa Margarita, CA
Sun Jul 13, 2008
I think Sandra is asking the most important question here. How can a listing agent effectively market the home (professional photography, quality marketing pieces, online exposure etc.) with 1%? It's likely that you essentially have MLS exposure and not much more. Unfortunately, in a market flooded with inventory, this is a strategy that would concern me.

I recently sold a listing that been listed by 2 discount brokers previously and the home had been on the market a total of 200+ days. With proper marketing, pricing, and positioning, I was able to sell it in 3 weeks. Consider looking seriously at how you are positioned with marketing and pricing. Ask your agent what they can do to maximize exposure and improve your positioning. If they then require a higher than 1% commission - I think that is worth seriously considering.

Timing is critical right now. We are in the final months of our summer market. My personal belief is that as we approach the election, this market is going to become very slow again. Do what you can to get your home sold in the next 60 days.
Good luck to you.
0 votes
Ray Chen & C…, Agent, City of Industry, CA
Sat Jul 12, 2008
A .5 percent commission is not going to put a big dent on your price. why would you want to sweat on this question? Your goal is to optimize all controllable factors to sell your house at the highest price.
0 votes
Amanda Wheel…, , Irvine, CA
Wed Dec 5, 2007
Good morning Kashif. I am a flat-fee real estate broker who sells homes in Irvine, and unfortunately your situation is not unique. I agree with Keith's post that you should definitely report the agent to the Orange County Association of Realtors because that conversation was a violation of our Code of Ethics.

It's unfortunate that some agents feel the need to disparage other agents when they do not get a listing. From your questions, I can tell that you are an educated homeowner and can certainly make your own informed decision as to which agent will best represent your interests.

As long as you are offering a competitive commission to the buyer's agent, you should not see any boycotts of your listing. In this market, agents are primarily concerned about earning their commission, not who is offering the commission.

I hope this helps. Good luck with the sale of your home!

~Amanda Wheeland
Real Estate Broker & Lawyer
Web Reference:  http://www.cinch2sell.com
0 votes
Keith Sorem, Agent, Glendale, CA
Wed Dec 5, 2007
Kashif
Thank you very much for your post.
The Realtor that approached is in violation of The Code of Ethics
Article 16
REALTORS® shall not engage in any practice or take any action
inconsistent with exclusive representation or exclusive brokerage
relationship agreements that other REALTORS® have with clients.
(Amended 1/04)
Article 16 is intended to recognize as unethical two basic types of
solicitations:
First, telephone or personal solicitations of property owners who
have been identified by a real estate sign, multiple listing
compilation, or other information service as having exclusively
listed their property with another REALTOR®;

I would file a complaint with the Orange County Association of Realtors
http://www.ocar.org, 25552 La Paz Rd ,Laguna Hills, CA 92653 (949) 586-6800

As you are listed with a broker my only additional comment is that it appears you may not have an accurate picture of the real estate market. Review this link.
http://calculatedrisk.blogspot.com/2007/10/imf-mortgage-rese…

I do not work in your area, however in general I know that Orange County is a strong buyer's market, Market tend to be "pockety", so you particular neighborhood might be different, but I doubt it.

Don't confuse the commission fee you pay with the amount of money you net at the close of the transaction. If the predictions are correct, and they apply to your situation, we are looking at a strong buyer's market for the next two years, at least. Bear in mind that a buyer's market is normal for the United States. The strong seller's market we have seen was NOT normal.

So it comes down to the liklihood that your home, right now, is at it's peak market value for the next two or three years. Think about why are you moving, your timing, and what the consequences are if you are either unable to sell your home for your net figure.

In most cases a Realtor's ability to negotiate their fee is a good indicator of their ability to negotiate for your sale price. You're worried about six percent. A good Realtor is worried about preserving the other 94%.

Best of luck to you.
0 votes
Michael Robe…, Agent, San Ramon, CA
Tue Dec 4, 2007
Kashif, While representing buyers, the best, agents won't hide your house from their client. Remember, over 75% of homebuyers are searching the internet for their home. They are not usually concerned with commissions..they want a great house at a great price. They will find your house anyway. Agents will/should simply submit a broker co-op agreement at 3% if it bothers them. I recently had an agent refuse to show a listing offering 2.5%...guess what his client called and asked why it was not available to his agent....Long story short, They made an offer! Amanda made a good point "offer the same commission as others in your area" that is the practical thing to do.

Michael
http://www.MichaelRobertsHomes.com
0 votes
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