- News Article
Reduced home-sale commission may not be good move
ConstecRealty - Miami MLS listings for condos and houses
A few days ago I received an e-mail from a very smart reader. I know he is smart because his e-mail address says ''post.harvard.edu,'' which presumably means he was graduated from Harvard.
He asked if real estate listing agents would reduce their customary sales commission rate for expensive homes. Then he gave an example of a $1 million sale, which, he says, doesn't include much more work for the listing agent than selling a less expensive home.
My reply noted that some successful realty agents would reduce their commissions on expensive homes. But the big drawback of reducing the commission rate, I hastened to add, is that many members of local multiple listing services will show a home with a low commission rate last to their prospective buyers.
According to the respected www.realtrends.com, the national average commission on a home sale is about 5.1 percent. However, this survey was taken during the recent boom during which virtually any realistically priced home sold easily.
Today, with a glut of new home listings in most communities, the situation is rapidly changing.
During a recent Midwest trip, I encountered a longtime very successful real estate sales agent friend. As I usually do, I asked her, ``How's the home sales market?''
She then informed me she currently has too many listings and not enough buyers.
''So I had to increase my sales commission rate,'' she said, shocking me.
By that, she meant she now encourages her home sellers to offer 7 percent commissions rather than the 6 percent that is customary in her community. The result, she reports, is that buyer's agents show her listings first because of the higher commission.
''When I really get desperate to sell a listing before it expires,'' she revealed, she includes an incentive trip to Hawaii for two to the buyer's agent who sells the home.
''A trip to the Caribbean or Mexico just doesn't work any more,'' she added.
Except in a very ''hot market'' where there is a shortage of home listings, most home sellers don't understand the big drawbacks of getting their listing agent to reduce the sales commission.
Yes, there are a few successful ''discount brokers'' who offer reduced sales commissions from the customary local rate. But the big problem for home sellers listing with discount brokers is that these lower sales commissions don't encourage cooperation from buyer's agents who are often reluctant to show low-commission listings unless there is nothing else to show to their buyers.
Most home sellers don't fully understand how home-sale listing commissions are split. They think real estate agents are grossly overpaid for very little work, especially if the home sells within a few days because it was realistically listed at its market value.
In a typical home sale, four parties split the sales commission. They are the listing broker, the listing sales agent who works for that broker, the selling broker and the ''buyer's agent,'' who works for that selling broker.
Although each situation is different, depending on the listing terms, each of the four parties will usually receive 25 percent of the gross commission. For example, suppose a condo sells for $100,000 with a 6 percent sales commission of $6,000. That commission is usually split 50-50 between the listing brokerage and the selling brokerage. However, this split might be 4 percent to the listing agent and 2 percent to the selling agent, or vice versa, depending on local conditions.
Presuming a 50-50 split, the listing brokerage receives $3,000 and the selling brokerage earns $3,000. The brokerage then splits its share with the listing or selling agent. The lowest split is half to the listing or selling agent, but often higher. That means the listing or selling agent earns at least $1,500 in this example.
Most home sellers (and buyers) don't understand that their agent might take home as little as 1.5 percent of a typical 6 percent gross sales commission.
Based on my 39 years as a real estate broker, there are only two times a home seller should consider negotiating a reduced sales commission from the customary local ``going rate.''
The first circumstance occurs when the home's market value is far above typical prices in the community. If you were selling a $1 million house in a town where the average home sells for $300,000, the successful realty agents you interview about listing your home for sale should offer a reduced commission without you even asking.
In other words, the higher the home sale market value, the more negotiable the sales commission becomes.
The second circumstance occurs after you interview several successful local realty sales agents, and list with the best agent at the asking price suggested by that agent. However, after exposure to the local market at least 30 days, if that agent produces a purchase offer substantially below the recommended asking price, that is the time to discuss a ''commission reduction'' if you accept the buyer's offer.
BY ROBERT J. BRUSS - Miami Herald - Posted on Sun, Jul. 30, 2006