Commission: Impossible

April 8, 2013

Choosing to sell your home is a big decision, and one not to be taken lightly. Another important decision that goes along with it is who to trust with your time and money to make sure you get the best possible outcome. Realtors can help in this endeavor, but the big question is, how much will it cost you?

A realtor’s services are technically free to buyers, because their pay comes out of the seller’s commission. The “typical” commission for realtors is 6%, though Frank Borges Llosa of explains that this is a figure that got stuck in the public’s head as the “norm” rather than an actual average commission price—in fact, the average realtor commission in 2010 was 5.4%. The reason the idea of the 6% commission has stuck is because, though the commission comes from the seller, it is usually split 50/50 between the buying and selling agents. Many agents have an Exclusive Buyer Agent Agreement that insures they will be paid a 3% commission; therefore, if a selling agent is selling a house for less than 6% commission and plans to split it 50/50, it could jeopardize the sale. In that type of situation, if a buyer was still interested in the house they might have to pay the difference in commission to their agent.  The same is often true of short sales, which typically only offer a 2.5% commission to the buying agent. However, if a selling agent lowers the commission, the buying agent’s will usually still be 3% or higher and the selling agent’s is the one that will go down.

Now, is quibbling over half a percent really such a big deal? Well, consider this: for a $500,000 home, each percent is $5000, meaning that a mistake in your commission could be incredibly costly. But is it worth it? A study published through Kellogg School of Management at Northwestern University and written about in the New York Times found that having a realtor didn’t necessarily boost the price of the sale, going against the idea that a realtor’s commission is a reasonable cost because they sell the house for a higher price than you could have by yourself. The study found that homeowners who sell on their own are generally more knowledgeable about the market, more patient, and more willing to negotiate than homeowners who pass off a lot of the responsibility to a realtor.

Llosa urges sellers to remember that you don’t always get what you pay for when it comes to realtors. Some 6% commission realtors don’t pull their weight, while others will go above and beyond for less than 6%. It’s important to meet with several different agents to find the right fit.

There are some ways to reduce your potential commission cost, one of which is to negotiate the commission with your agent. This is especially applicable if the house is priced fairly high, but is still worth a shot even if it’s in the middle ground. It never hurts to ask; they might agree! If this route doesn’t work, you can always try a big chain for discounts and rebates. California-based ZipRealty docks commission and gives a rebate, while sister websites LendingTree and offer non-cash rebates such as airline miles or gift cards.

Still, if a realtor isn’t the right decision for you, you don’t have to go completely alone. (For Sale by Owner) offers access to the Multiple Listing System for a flat fee, allowing the exposure you’d get with a realtor without the cost.  There is a whole slew of other websites who are willing to help with parts of the process; you just need to figure out what you can do yourself and what you’d rather pay someone else to do.

#dean graziosi #down economy #housing #investing #Investment #investors #Real Estate