The St Aug Blog

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

Everybody wins.

Will paying a higher commission get you a better price for your home?

The short answer is “yes.”

A higher commission does three things:

The first is that it guarantees the home will get shown. 

For example, you have a 3-bedroom, 2-bath home for sale in the Shores.  There might be 20 other 3-bedroom, 2-bath homes also for sale in the Shores in similar locations with similar square footages.  What a higher commission guarantees is that your home will make the showing cut every single time.

More showings means more buyers, which typically means a faster sale.  The benefit to a faster sale is that a buyer can’t say, “this home has been sitting on the market for a long time and we can offer a lower price.” So the sales price is typically higher.

That being said, no matter how many looks you’re getting, an overpriced home won’t sell.

The second is that it will get and keep the unprofitable real estate agents in the game.

Real estate agents are strange birds.  In every other industry workers routinely change companies to get better pay and benefits.  Real estate is the only industry that I’ve worked in where people routinely stay with a company that offers the lowest pay (Realtors split their commission with their companies…a company that pays 50% or 45% of the total commission is considered low, a 90% split or transaction fee only companies pay the best).

Part of it has to do with a new agent coming into the market and not knowing any better.  After a period of time it’s a situation where staying with a low paying company is staying with “the devil they know” versus moving to another company, “the devil they don’t know.”  Add to that the fact that most new real estate agents won’t survive the business past two years anyway, it becomes a self supporting cycle.

So these agents are extrodinarily fixated on each individual sale, and each individual commission.  Because it takes a bigger overall commission to make these low-paid agents profitable, they will pay more attention to the highest commission.

These agents will still show homes with lower commissions, but because they are in the business to make a profit, they are not legally, honorably or ethically bound to show a commission that will result in a break even or money losing sale.

So in the same way that a higher commission guarantees everyone will look, a lower commission will guarantee at least a few agents will drop out and not see your home.

The third is that it will keep the deal together.

Since the commission is on the higher side anyway, and since Realtors are so fixated on it, they will do pretty much anything to keep the deal together.  Conversely, in a deal where the commission is on the lower end, it is sometimes in an agent’s best interest to let the deal die when the buyer and seller can’t together on an issue, because the agent knows the next deal will almost certainly pay better.

Over the years I’ve discovered another unintended (positive) consequence of a higher commission for the seller.

When a seller knows they are paying a higher commission they are super motivated to do whatever it takes to get the highest price for the home.  So when something breaks, they fix it.  If the feedback comes back that the orange wall in the living room is turning buyers off, the wall gets painted.  In other words, when a seller feels they have skin in the game, they do what they have to do to get the best price.

A commission myth busted: Just because you agree to a higher commission doesn’t mean you’re getting better marketing.

Commission is the engine that drives real estate sales.  It’s the pay scale for real estate agents.  It has nothing to do with whether or not the agent can actually market a home well.

I can’t tell you how many homes I’ve seen on the higher end with grainy, out of focus, or tilted-sideways photos.  Or just a single photo.  And no video, and no virtual tour or other still photo gallery.  And no real internet exposure except what comes automatically with inclusion in the MLS.

I would argue that sometimes it’s the commission and only the commission that keeps a house in the game when the marketing effort is base level.  So research your agent’s listings and their absorption rate before you hire them.

Next week we’ll be exploring the biggest commission myths, so stay tuned.

Hire St. Augustine Team the next time you go to buy or sell.  Email us or call Broker Sean Hess at (904) 386-8327.