Archive for the ‘The consequences of asking a Realtor to cut their commission’ Category

Asking a Realtor to Cut Their Commission…

Tuesday, May 8th, 2012

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

Asking a Realtor to cut their commission…

I toyed with a few different ways to title this post.  Such as, “Can you ask a Realtor to Cut Their Commission?” or “The Consequences of Asking a Realtor To Cut Their Commission” and even “Will it Hurt Your Sale if You Ask Your Realtor to Cut Their Commission?”

The first thing you have to understand is what commission is, and what commission does.  As I wrote in an earlier post about Commission Mythbusting:

“Commission is the engine that makes real estate sales go.  It’s what gives real estate agents the motivation to front all the money, effort and time to market a house on their own dime while the seller sits back and waits to get paid.  Commission is what gives real estate agents the motivation to wade through countless emails and phone calls from looky loos, and to sit there on a Saturday at an Open House with a pasted-on smile while some jerk buyer rips into how ugly the house is.”

Let me emphasize the important part of the last passage: the real estate agent is doing everything on his or her own dime, in advance, whether a property sells or not, so that the seller can sit back and wait to get paid.

A good commission can turn a pussycat into a sales tiger.

A good commission can turn a pussycat into a sales tiger. Photo Jessie Cohen, National Zoo.

Call me crazy, but that sounds like a bargain.

Real estate agents are not robots.  They are not cold hearted and only concerned with profit, as such.  But it takes a tremendous amount of energy and motivation to go through the process of doing a job day after day for everyone else’s benefit without getting paid.

What I’m saying is that there has to be a really big upside, that the carrot has to be really big to inspire this type of performance, to actually get a home sold.  And that carrot is the commission.

So let’s take a look at it in actual practice.

Let’s say the total commission starts at 6%.  The total commission is typically split between the agent that brings the buyer and your listing agent, in this case, 3% for each side.

If you have a $200,000 house and ask your real estate agent to cut his or her commission by 1%, you will net a savings of 1% or $2000.

Now the total commission is 5%, or 2.5% to the agent for the buyer, and 2.5% for your listing agent.

At a 6% commission, each side would have been paid a gross commission of $6000 to create the sale.

At a 5% commission, each side is now getting $5000 to create the sale.

Now here’s the critical part:

Your listing agent has an agreement with his or her real estate agency to keep part of the gross commission on every sale.

If your listing agent has a 50% split with his brokerage, the agent would net $3000 on a 6% sale, and $2500 on a 5% sale, a difference of $500 or 17% (this 17% should hold true regardless what split the agent is at).

So when you ask a real estate agent to cut their commission so you can make an extra 1%, you are asking them to cut their paycheck by 17%.

Could that possibly hurt a real estate agent’s motivation to sell your property?

Real estate agents and brokers are for-profit entities.  Commission is buying you the motivation, and the skill, and the rolodex of your listing agent and your listing broker.

And it’s also buying you the motivation of possibly several hundered real estate buyer’s agents that you don’t know, all working on your behalf to get your property sold and get you paid.

If someone is doing all the advance work for free, asking them to cut their own paycheck by 17% before there’s even a hope of getting paid…would you agree to those terms and still work with the same level of motivation?

I’ll answer that for you: only if you suggested it first.  In other words, only if the agent offered a lower rate on their own.

Also keep this in mind.  Sellers that are paying a higher commission (or better stated, a higher rate of return) have a right to more access and more of their agent’s time for someone that is paying a lower rate.  That is just common sense.

But can you still ask for the lower side of a commission if it makes sense?

Certainly.  Again, I’ll refer you to the Commission Mythbusting post I did again to understand how and when you can go low on a commission and when you should go high.

And guess what?  If your agent has worked with you awhile and knows you’re at the nubs, and $1000 is the only thing standing between you and a deal, he or she might offer to cut the commission anyway.

The important thing is to have a good working relationship.

And that your agent is motivated by the business you’re offering.