by Sean Hess (Sean@StAugTeam.com), Broker and Manager for St. Augustine Team Realty (www.StAugustineTeamRealty.com). Join us on Facebook and Google+.
So far we’ve done:
Asking a Realtor to Cut Their Commission…
Commission Lies Exposed: The Biggest Myths About Real Estate Commission.
and
Will Paying a Higher Commission Get You a Better Price for Your Home?
Now the last one, “So Just How Do I Get A Discount on Real Estate Commission?” If you are buyer looking for a commission rebate, scroll to the bottom.
To set the ground rules on commission, I will quote (as I did in another post) from Real Estate Commission Lies Exposed:
“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.”
Commission is motivation and commission is a real estate agent’s paycheck. The better they get paid, the better motivated they are to do a good job for you.
Reducing commission, like texting while driving, doesn't always work out as well as intended.
As we’ve explored in previous posts it generally works to your disadvantage when you reduce your commission off the standard rate in your market.
We’ve also explored that when the home has a large buyer pool, and is correctly priced, there may be an opportunity to offer a reduced rate commission, simply because there will be enough buyers that will beat a path to the listing Realtor’s door. If the home is competing against a lot of other similar inventory, “correctly priced” means “under market value.”
But you’re mom and dad said “Never pay full price,” so you still want a discount.
Here’s where you are going to have to adjust your mind.
You don’t want a discount on your commission. You want your commission to do what it is intended to do, which is to drive the Realtors to your door with buyers attached to their hip as fast as possible, and to get an offer fast as possible, so the buyers don’t use the time your home has been sitting on the market as leverage to get a better price.
What you have to wrap your mind around is getting the highest possible net. This is more possible with a regular commission.
Let’s say you decide to price your $200,000 home at $210,000 because you want “wiggle room” to negotiate. Let’s also say your Realtor agrees to a 5% commission in a 6% market. This reduction will save you $2100 at full list price, and your agent will lose a minimum of $500 in income (or 17% of their potential gross after the commission is split with their brokerage).
Neither the buyers nor the real estate agents are going to beat a path to this home. They will show it, but you probably won’t get an offer fast.
But let’s say it does get an offer in 90 days, which is still pretty fast. Let’s say the offer is 92% of list price, which would be $193,000, which you accept.
Now let’s take the same example and list it correctly at $199,900. Let’s also say you pay 6% instead of 5%.
In this example you get an offer in 30 days for $195,000, which you also accept.
In the first example you paid a total of $9650 in commission, leaving you $183,350 before state taxes, mortgage payoffs and other closing costs.
In the second example you paid a total of $11,700 in commission, leaving you $183,300 before state taxes, mortgage payoffs and other closing costs.
So you came out ahead with the 5% commission by $50, right?
Wrong.
Because your home was on the market an extra 60 days, you had 60 extra days of taxes, insurance, mortgage payments (if you have a mortgage), homeowners association or condo fees (if applicable), and utilities.
If your property taxes were $3000 a year, that means you would pay an extra $500 to Uncle Sam by keeping it an extra 60 days. Alternatively, the buyer would have paid those taxes if he or she bought 60 days earlier.
And if you have mortgage payments, you may end up paying several thousand $ in extra mortgage interest for the additional 60 days as well.
I’m not saying it happens this way all the time. What I am trying to say is that the extra time on the market generally kills any advantage you had by getting a discount.
What would be better is that:
a) The house is priced correctly (because even with the standard rate commission, buyers will stay away if it is not priced correctly).
b) That the house is always clean and tidy.
c) That the house can always be shown on short notice. Because it’s almost always short notice.
d) The house has the minimum of personal effects (knick-knacks, personal photos, etc.), with just enough furniture so the buyers can start envisioning where they’ll put their furniture.
e) The correct commission, because you don’t ever want to give them a reason to stay away.
If you do these things, a) through e), you might even get full list price.
If you are a buyer who wants a commission rebate…
There are some buyer’s agents out there who will offer you a rebate or some kind of gift card if you buy in a certain new housing development. They are doing this because they are getting an above market commission and are giving some if it to you in order to entice you to use them.
However, except in those case where the agent brings it up, do not bring it up unless you want really poor service (in a best case scenario), or unless you want to get thrown out of the office (in a worst case).
Look, when you are buying a house the only thing you have to do is show up with the money at closing. And if a lender is providing the money, really the only thing you have to do is show up and sign the documents. Anything else you may do while buying a house (attending the home inspection, signing your loan application, for examples) is something you should do anyway in your best own interest.
The real estate agent, however, is making sure that everything is going swimmingly so that there is a house for you to buy at closing. The commission represents their pay check for doing this.
The house you are buying will give you a nest egg as it gains equity, but also some pretty hefty tax advantages as well, neither of which you will share with the real estate agent. And last but not least, you are gaining a shelter and a home for you and your family, also something the real estate agent will not enjoy.
Listing agents have thicker skin because the issue of who-gets-paid-what comes up everytime listing paperwork is signed.
But it’s actually pretty rare for a buyer to ask for a rebate or portion of the commission.
The reaction(s) by a normally unflappable, ever-optomistic real estate agent are usually just as rare: an indignant “no” all the way to hanging up.
In the few times it’s happened to me I gave a very polite “no,” and then immediately dropped the customer. I’m simply not going to get into a 60+ day working relationship where the person I’m working with is angling for my income on the first day.
Look at it in a different way. Imagine you’re a waiter and the customer says, “You’re really not doing anything but bringing our food from the kitchen, so we want you to rebate us a portion of your tip so we can buy dessert.”
What kind of service is that customer going to get? Same thing in real estate.
Hire St. Augustine Team Realty when you go to buy or sell. Call Broker Sean Hess at (904) 386-8327 or email ReQuestion@StAugTeam.com.
Have you ever been chucked out of a real estate office when you asked for a reduction in commission? If you have I’d love to hear about it! Just email me at the address above.
