Why is it that realtor charge a commission percentage? Do you do anymore work to sell a $500,000 home than a?

Asked by Joe, Detroit, MI Fri Jun 27, 2008

$400,000 home?

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Don Tepper, Agent, Burke, VA
Fri Jun 27, 2008
As a home buyer, you don't have any control over the situation. The listing agreement is between the seller and the listing agent.

As a home seller, you can negotiate with a Realtor. Commissions aren't fixed. If you decide you don't want to pay as high a commission for a more expensive house, then ask for a lower commission rate. You might or might not get it. There are also flat-rate services available. And, of course, you can always sell FSBO.

Do agents do more work selling a $500,000 home than a $400,000 one? Maybe yes. Maybe no. Each transaction is different. For instance, a $500,000 house in pristine condition with comps going for $550,000 (seller wants a quick sale) is probably going to be much easier to sell than a $400,000 one in not-great shape with comps at $400,000. But the opposite is true, too: a $400,000 property in great condition with comps at $425,000 will be an easier sell, on average, than a $500,000 property in mediocre condition with other comps at $500,000.

Good question, but one without a clear, easy answer.
2 votes
Susan Wesely, , Saint Paul, MN
Fri Jun 27, 2008
Some Realtors charge flat fees. Some have a sliding scale depending on what you want them to do to get your home sold. It's all negotiable. And the simple answer to your second question is, it depends ont he Realtor. You should be asking potential candidates what they will do for you, and pick the one who will provide the best value to you. If you would like a referral to a creative person in your area, please email me - su@suwesely.com. I wish you a successful sale!
1 vote
J R, , New York, NY
Mon Jun 30, 2008
I'm sorry Elv!s, I didn't mean to offend, you look SO much younger! Not a day over 50!
0 votes
Alan May, Agent, Evanston, IL
Mon Jun 30, 2008
Even if they were 105 years old, blind and had an IQ of 4?
hey, don't knock 105 year old agents!
0 votes
J R, , New York, NY
Mon Jun 30, 2008
Jim - If the best defense of your profession is some bitter remark you may want to consider a new career. Your point that I should not worry about the sellers commission is pretty weak, yes I can't control the situation but last time I checked when I buy a house it is my money that is being used to pay for the house as well as my agent and the sellers agent.
Technically, Joe, you may be paying for the owner's kid's college education too. What the seller does with the proceeds of the sale is none of your business and irrelevant to the value of a house.

No matter how much experience we have, every transaction is different. Everything isn't technical, much of our work deals with emotions and principles. Like you: you say it's YOUR money that pays everyone and you want to control where it goes. The seller may be thinking you're trying to nickel and dime him. I've had few closings where the buyer didn't think he paid too much and the seller didn't think he gave it away.

As for a marketing plan being worth 29,000....well do you really think we make 29,000? I'm sure you now know that this amount is split 4 ways. As you say: "As a seller, I don't care if you get 75% or 7.5% of the commission, all I care about is what I am paying in total and if I feel that justifies using an agent.". That's a pretty stupid criteria for choosing an agent, if you ask me. So if somebody knocks on your door and says they'll do it for nothing, in your mind you'd be getting a good deal? Even if they were 105 years old, blind and had an IQ of 4? The fact is, if your house doesn't sell it doesn't matter what percent your agent charges. So if you're paying 2% and the house doesn't sell, I guess that justifies it how much "more" you didn't get?

Some of your comments are very simplistic (asking Pacita why she just "doesn't charge MORE" for a short sale) and indicate a lack of understanding of how the real estate business works. 80% of your EXPOSURE may be thru the MLS but rarely does a buyer find a house in the MLS and that's the one they buy. It's much like print advertising: a buyer sees a house advertised (or sees it online in an MLS database) and something about the photo or the prose in the blurb touches him somehow and he wants to see that house! RARELY is that they house they buy, that is just the house they come to the agent on. By simply paying a flat fee, you don't have much of a chance to sell it--you only have one house to sell! However, when they come in on one of our listings, we look for homes they might like to see.

I certainly hope your experience here gives you a greater understanding of our jobs, but I fear your mind is made up already and no amount of explanation will change it.
0 votes
Pacita Dimac…, Agent, Oakland, CA
Mon Jun 30, 2008
Hi, Joe

Gosh, I would love to charge more to do a short sale listing....but the sales commission is not set by us, but rather by the lender. Depending on how how much they are going to net from the sale, they may specify a much lower fee than the standard.

I've set the commission rate at 6% which tends to be the norm (although I've heard of other brokers who start out at 8%), But if the approved sales price is much lower than the original list price, or if the estimated sales proceeds are much lower than what the loss mitigation committee anticipated, the lender will, and they have, ask to reduce to commissions, sometimes down to 4% -- split 50-50 between the buyer's and seller's agents.

Thankfully, none of my clients are finding themselves upside down. But I have been approached by others who need help. I do it because a short sale will be less of a black mark (but a mark nonetheless) on the homeowner's credit.

The breakdown in sales commissions is not the only factor in determining the realtor's value. What is more important is the summary of all the activities that is involved, and how many hours and how much it costs us out-of-pocket. Remember, if the property doesn't sell, we don't get reimbursed for our costs. AND...how much is our time worth?

As for marketing --- I focus on internet marketing. And by that, I don't mean just activating it on the MLS or REALTOR.com.

On Realtor.com, I take as many pictures as I can (we're allowed up to 25), I customize the text description, I upload a visual tour. Then I also post on as many websites as I can --- Trulia is one, Active Rain, craigslist, vflyers, postlets, visualtour,com. I send electronic flyers (email blasts), too. Uploading the information is very time consuming since these sites are independent of each other.

When I do broker's tours, I serve refreshments to entice as many brokers as possible to come see my listing.

I also do the other traditional marketing that includes holding open houses, sending out postcards and letters, emailing prospects with information about the listings, following up with everyone who expressed an interest or saw the property. AND....advertise in newspapers, print color flyers. Although print is losing favor as compared to the internet, it still merits attention although this is the most expensive medium today.

I order/coordinate all the inspections (pest, home), order home warranty, complile all the disclosures, go to city hall to pull up permits, determine local ordinances and minimum compliance requirements. Then put this all online so that other agents can get the disclosures, and also make sure I have a property binder at the property so that other folks will see the information when they visit the property.

If my client can't afford to hire a stager, I do some light staging myself (and that involves investing in my own stuff to use for staging).

Finally, we also should take into account how much it costs us to be members of the local board...sometimes, on more than one board....so that we can post on the MLS. Membership also includes the cost of maintaining our lock box keys.

And....now that the gas prices are rising, we have to consider the cost of gas, wear and tear on our cars ferrying people around to show properties.

Through it all, I am always communicating --- via phone/email --- with the sellers, the agents, the title company, the inspectors, etc.

Like I said, it's a time-consuming process. So I guess the question is, how much is our time worth? If your realtor isn't doing all the things I just mentioned, then you may have room to negotiate the sales commission. In my case, once I present the activities I do for my clients, they see the value of my services.

Take care and good luck!
0 votes
Joe, Home Buyer, Detroit, MI
Mon Jun 30, 2008
Jim - If the best defense of your profession is some bitter remark you may want to consider a new career. Your point that I should not worry about the sellers commission is pretty weak, yes I can't control the situation but last time I checked when I buy a house it is my money that is being used to pay for the house as well as my agent and the sellers agent. (If I don't buy the house nobody gets paid hence it is my money paying everyone.) Don and Pacita, thanks, I guess you answered the question for me but in doing so made a point. Pacita, I get that it is twice the work, maybe more, to list a short sale. That said, why wouldn't you charge twice the commission? If it because your competition would do it for less then that is what the market will support. On the flip side, with experience you should all have a fairly good grasp of how hard it is going to be to sell a home going into it and should set a commission, flat or percentage, accordingly. My frustration, and I guess challenge to your profession, is to evolve. If 80%+ of the exposure I am going to get is through the MLS realize that I can put a price on that - between $500-$700. On a $500,000 sale, I am paying 60 times that to use agents on both ends. I do think that there is a role for agents especially with less savy (and less interested) sellers and relocation buyers. But in my case I need to be conviced that the marketing plan is worth $29,500 - that was my starting pay out of college. I currently live in a nice, historic home valued around $850k. I had a market done by a realtor and I told her that I thought 6% was excessive. Her response was to break down how the commission was split between the parties and in fact she would only end up with about 10k for the work she did. My advice to all Realtor, never try to justify you commission by explaining that it is split 4 ways and you only end up with x amount. As a seller, I don't care if you get 75% or 7.5% of the commission, all I care about is what I am paying in total and if I feel that justifies using an agent.
0 votes
Pacita Dimac…, Agent, Oakland, CA
Fri Jun 27, 2008
On the listing side, each listing is different, just as each client is different. Some properties are harder to sell and will involve more extensive (and at times,more expensive) marketing. Today, there are more short sale listings that involve three times more work than a regular sale.

For example, I have a short sale listing for $525K, But because there are two buyers and two lenders, I had to double the sets of documents required. For each borrower, I needed two recent pay stubs, two most recent bank statements, two most recent tax returns, hardship letters, estimated HUD statements. After compiling these, I send two sets of documents, one to each lender. All very time-consuming and requires a lot of attention to detail.

Similarly, I have handled regular sales that had no such requirements and were a breeze to close compared to short sales.

On the buyer side, some buyers take more time to learn the process, look for more houses than anyone else before making a decision, make more demands for repairs and credits, require a lot of hand-holding until escrow closes,

Yet, our commissions are generally the same, regardless of the type of sale. Believe me, realtors earn every penny!
0 votes
J R, , New York, NY
Fri Jun 27, 2008
Well, Joe, the easiest listing I ever sold was 949,000. The hardest one I ever sold was 349,000 (unless you include the mobile home for 89,000 which was even harder to sell). The price does not determine the difficulty.
0 votes
Jim Johnson, , 78233
Fri Jun 27, 2008
As a home buyer, you should not be concerned about an agent's commission. The seller will be paying it out of the proceeds of the sale.

To answer your question, very often, yes. Or we may advertise more. Then again, we may do no more work for the commission on a million dollar property than we do on a $10K lot.

Now, I need to ask what percentage of your income you are willing to forgo--17%, 33%?
0 votes
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