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.
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.
