Dont Be "Pound Foolish" About Real Estate Commissions
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Everybody wants a deal and, home sellers seem to particularly want one when
it comes to paying a real estate commission. People who don't blink at paying
their attorney $275 per hour get just a little crazy when confronted with a
five, six, or seven percent commission. Most agents know that "what do
you charge" will be one of the first questions a prospective seller will
ask.
While local areas have "typical" or "average" commissions, these are certainly negotiable (if they were not, it would be considered price fixing,) and it never hurts to try. After all, even a half percent cut in the commission on a 300,000 sale means a lot more cash, $1,500 in fact, in the check the attorney hands you at closing. But, before you try to cut a deal, there are some questions you should ask the agent and yourself.
1. What services will I get for my money?
"You get what you pay for" isn't necessarily a cliché. If the agent
is a "kitchen broker", literally operating alone and out of her home,
she can well afford to cut a six percent commission down to four. She doesn't
have the overhead of a real office - rent, a sophisticated phone system, secretarial
support, professionally designed marketing materials, a name brand, and probably
not much of an advertising budget. Even franchises with big names but small
offices will come up short on some of these services.
You need to ask:
-Are your phones manned by real people during normal business hours and especially on weekends?
That Sunday newspaper ad won't do much good if there is no one available to
answer a prospect's questions or to schedule showings for cooperating agents.
The latter is especially critical. Real estate agents often have a very short
time frame to schedule multiple showings over complicated routes. If no one
answers the phone and confirms a showing, it just won't happen.
-Where and how often will you advertise my house?
Advertising is a major expense. While television ads, spreads in glossy magazines,
and insertions in prestigious national publications such as The Wall Street
Journal are less about marketing an individual property than promoting the real
estate company's image, the local paper and nearby metropolitan papers are key
to marketing a home. An agent should be willing to commit to an ad in whichever
paper serves as the local real estate marketplace at least once a week for a
few months and every other week after that. The agent should also be willing
to rewrite and "freshen" the ad on a regular basis.
And, no matter how low the commission, make sure that your agent is a member of all relevant local multiple listing services (there may be more than one in your area) and that your home will be promptly entered into those data bases.
2. What split will you be offering?
Listing agents split their commission with the agent who secures a valid buyer. This is usually a 50/50 proposition, but it doesn't have to be. Theoretically the selling agent could be paid $1.00, but then why would he show your house? Like everyone, agents are financially driven, and, all things being equal are likely to show and promote those listings with a higher split. If an agent cuts his commission to obtain your listing, insist that the discount come from his share so that cooperating agents are offered a commission competitive in the area. Where the prevailing commission is five percent, an agent willing to list your home for 4.5 percent should take two, offering 2.5% to cooperating agents.
Referral fees are becoming more and more of an issue for agents. If your company, alma mater, or even the discount warehouse where you shop, offers an "affinity" program that will give you special incentives for listing with an agent they refer, that agent will pay a healthy piece (as much as 35-40%) of his commission to the affinity program for providing access to you. Other referrals from relocation companies or out-of-area brokers (even your retired neighbor who keeps her license active and knows "the nicest agent") require at least a 20% cut of your agent's commission.
The agent accepting a referral should absorb those fees, not pass any part
through to the cooperating agent. Again, a lower "split" is a disincentive
to showing your house, and realistically, why should anyone else pay your agent's
marketing expenses?
As an aside, if you are taking advantage of an affinity program, it is really unfair to also ask for commission concessions. Everyone needs to make a living. Decide up front if you want to try to negotiate a commission or get the cash back at closing offered by the program.
The split is always displayed on the "internal" multiple listing
sheet for agents (not the public one setting on your dining room table or passed
out to buyers.) Insist upon seeing this sheet after your house is listed to
be sure the split is the equitable one you and the agent agreed upon.
Another question to ask, even if the agent is unwilling to offer a lower commission
up front is "Will you reduce the commission if you sell the house yourself?"
Trick question! The answer should be a resounding NO, and if the agent suggests such a scenario first, escort him, graciously but immediately, to the door.
Think about it. You are hiring an agent to market your house, not to sell it. You want it exposed to the largest possible pool of buyers, not to the limited number your agent may be able to produce on his own. Now do the math. If you are paying a five percent commission, your agent will probably collect 2.5%. But if he can collect four percent for managing both ends of the transaction, he has a real incentive to cut back on efforts to motivate other agents, delay putting the house into multiple listing, even to play games with offers presented by other agents.
3. Now, ask yourself a question.
As house prices escalated, commissions declined. Six to seven percent used to be pretty universal, but in many high priced communities, four percent is now the norm. Good agents have many expenses - association dues, errors and omissions insurance, multiple listing and lock box fees, advertising and promotional expenses, cell phones, and automobile costs - which are constant whether they sell a house or not. Not your problem you may say, but before you negotiate too ruthlessly, ask yourself this:
Do want your agent to be enthusiastic about selling your house or do you want him treating your listing as a bad deal he got suckered into?
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