Archive for the ‘should my realtor take less commission’ Category

St. Augustine Homes for Sale: Will a Reduced Commission Rate Hurt My House Sale?

Monday, January 31st, 2011

by Sean Hess (Sean@StAugTeam.com), Broker and Manager for St. Augustine Team Realty (www.StAugustineTeamRealty.com).   Join us on Facebook.

Will a reduced commission rate hurt my home sale?

First of all, what is commission and what is it not.

You will love commission when it is working for you.

You will love commission when it is working for you.

There is no “set” commission: rates are negotiated between the seller and the agent.  Typically half of the commission goes to the “buy” side (the agent that finds the buyer), and the other half goes to the “sell” side (the agent that lists and advertises the house for sale).  

On some occassions more than half (or less than half) of the total commission goes to one of the sides as an extra incentive to sell the property.

Make no mistake, commission is a financial incentive.  It’s what drives an agent to sort through all the buyer candidates to try and find that needle in the haystack that will buy your house.  And it’s what drives your listing agent to work to sell your house.

And in Florida commission is considered an offer of employment.  In other words, no agent is legally, honorably or ethically obliagated to accept the terms of your employment (i.e., bringing a buyer to your home) if it doesn’t make business sense. 

In other words, no agent is obligated to show your house if the commission doesn’t pay the bills.

So that gets back to the original question…will a reduced rate hurt my house sale?

As a general rule, someone who pays more gets better service, just like anything else.  But even if you were to offer high commission rate, it still can’t/won’t sell your overpriced home.  Nor will an ad on the Superbowl.  Price, condition and location sell homes and in that order.

To define “low” commission you have to look at the individual market.  My informal observation as an agent in St. Augustine the past 10 years is that if you run under 2.5%  for the “buy” side you will hurt your chances of a sale.  So if you negotiate a 4.0% with your agent you should insist that 2.5% goes to the buy side, otherwise, in my opinion, there’s no point in putting it on the market.  

On the other side, you may negotiate a 7.0% total commission with your agent.  In this case you could offer 3.5% to each side, or even an uneven 3%/4% split to provide greater incentive to one of the sides.  

For example, you may offer the 4% to the listing side instead of the buy side.  The reason: if it’s an especially tricky sale, or if it’s a home type or price range that has a demonstrated days-on-market of over a year, the 4% will keep your agent continually motivated for the long haul (which is what you want). 

There was even a time (2007-mid 2009) when a higher commission would actually “create” a sale (hundreds of Realtors were going out of business and those trying to hang on were grabbing at the higher rates).  As things stabilized Realtors started focusing on creating more total sales instead of the highest commission per sale.

Plus as a bonus, I’ve also observed that when a commission gets above 3% it will do a lot to hold a deal together after the contract is signed.  A lot of the shenanigans that some agents pull get put to rest when there’s a few extra bucks on the line. 

There is another thing to consider: commission splits within a company.  When an agent earns a commission they then split that with their brokerage.  Some companies take 50% or more of an agents earnings, thus the agent is focused by need on homes at the higher rates.  For the agents with the better splits, the more likely it makes business sense to show a home with a lower commission. 

So to put it in a nutshell: as long as your home is priced right for its condition and location, a lower commission won’t hurt the sale, but a higher commission will help it in the sense that the listing agent will be a bit more motivated to stick with it and a high commission on its own can actually hold a deal together after the contract is signed.

Homes for Sale in St. Augustine: Should My Realtor Take Less Commission to Make a Deal Work?

Wednesday, November 10th, 2010

by Sean Hess (Sean@StAugTeam.com), Broker and Manager for St. Augustine Team Realty (www.StAugustineTeamRealty.com).   Join us on Facebook.

Recent sold properties from St. Augustine Team Realty.

Recent sold properties from St. Augustine Team Realty.

Real estate is a unique industry in that we typically charge a commission for our services (versus charging a flat fee for or charging by the hour).  The commission is usually a percentage of the final purchase price.

Real estate is a hard business.  Real estate agents typically aren’t paid any salary or benefits, but make their living solely on commission. 

To find a buyer that is ready, willing and able to purchase a property, a real estate agent typically has to wade through 10 prospects just to get to 3 “solid” prospects to find the single real buyer.  But the agent still has to do all the legwork, phone calls, emails and research to find that one real buyer.

On the listing side, even the best agents typically have to interview three sellers just to get a single listing that has the potential to sell, based on the seller’s criteria.  And once the listing is secured there can be months and months of networking, advertising and marketing to attract a viable sales contract.

So a flat fee won’t work (typically) because the length of the job is uncertain.  A listing or buyer that looks like a “slam dunk” might take months longer and much more in terms of $$$’s and time than it would appear at first.  An trust me, you don’t want us to charge by the hour (like attorneys), becuase it would end up costing much more than commission.

Thus commission is the only viable way for an agent (who I remind you has no salary) to have enough incentive  to front their own money and time on a seller or buyer’s behalf to get a property sold.  If the property doesn’t sell, the agent doesn’t get paid, so it takes a powerful incentive to find quality people who will work as agents day in and day out.  Also, when an agent is successful and closes a deal he or she is immediately “unemployed,” and has to start the process all over again.

That being said, at St. Augustine Team Realty we base the commission we charge based on the difficulty of the job: we don’t have a flat commission rate for all listings.  If its obvious that the home is going to sell faster, we charge what we feell the job will cost, not what we could charge.  At the same time if we know there’s more work involved than the average sale, we will charge appropriately.  And if there’s something a seller might want that’s not part of our normal marketing plan, we’ll give the seller the opportunity to pay for it, and we’ll refund a portion of that cost at closing.

Our sellers (especially our investors) are fine with that.  They feel that the better we do, the better they do.  Because we are working on their behalf, our customers know that if we as agent are appreciated they will get the best service and financial gain.

So should we as Realtors take less commission to make a deal work?  The situation comes up some times when unexpected repairs or fees arise near the end of a transaction.

From a personal standpoint, my name isn’t on the contract.  When the the buyer buys the home and gains equity as the home appreciates I don’t recieve or benefit from that.  And when the seller gets their payoff from selling the home, I don’t enjoy any of their equity gain.  I simply get paid for the job that I was hired to do, and I don’t see a reason to pay for a repair who’s responsibility is already covered in the contract. 

The best insight I’ve found so far I found posted in an online forum.  The Realtor, John Walin, of Libertyville, Illinois, put it succinctly:

“If i do a good job getting the house you sell or buy and a better than competitive price, should I charge you extra? The only time I make a commission concession is if it is a buy & sell or I need to make something right that went wrong. For example, the washer and dryer are supposed to be included at closing and the seller got sneaky and removed items between contract date and closing date. In that instance I gave my buyer half the cost of buying a new washer and dryer. $500 went a long way to make that buyer very happy and received two referrals since. Best $500 I ever spent!”