Robyn Seymour - How Much Commission Should You Pay for a Real Estate Deal?

A very important topic that gathers a great range of attention is Real estate sales commissions. Since sellers naturally wish to reduce the cost of selling their home this is highly understandable. But, there is a point after which the reduction of a commission becomes counterproductive and begins to undermine the sale of your home. A significant portion of the commission you offer should be dedicated to attracting more buyers.

Commissions are comprised of three parts:

Advertising budget – the money spent to advertise your home; Buyer Agent Split – this is the share of the commission that is offered to other agencies as an incentive to find buyers for your home; Fee for Services – this is the portion of the commission that the listing agency earns for all services performed on your behalf.

A common mistake made by sellers is to think of commissions strictly as component number three – Fee for Services. They feel good about negotiating a low commission rate but fail to realize that they may have undermined the successful sale of their home. To compensate for a low commission rate agents will sometimes lower the advertising budget and commission split offered to other agents. From the seller’s standpoint this is counterproductive. What good is it if you save one or two percent on the commission rate but fail to attract qualified buyers? For superior results you need to attract as many buyers as possible.

Another aspect of the “Services” portion of the commission is that it’s really more than a time-and-materials charge. You can’t calculate the service portion of the commission by multiplying a fixed dollar amount by the number of hours an agent invests in selling your home. Why? In a traditional commission arrangement payment of the commission is conditional. The seller is only required to pay a commission if a buyer is found and the home actually sells. If the home does not sell, the homeowner pays NOTHING. The agent and broker are assuming the costs and risk of a home not selling. If the home doesn’t sell not only does the agent not earn a single penny, but they actually lose money. You don’t need to feel sorry for the agent. But, understand what you’re paying for. A large part of the “Service” portion of the commission is actually for risk mitigation. Not only are they assuming monetary risks by paying for marketing up front, they assume some of the liability risks via their involvement in the sale. You are also paying for the agent’s knowledge and experience to guide you through the sales process. There are a few agents that are willing to work for time-and-materials. But interestingly, once a seller understands that under this business model they may have to pay several thousands of dollars without any guarantee that the home will sell, most opt for a traditional commission arrangement where payment is only due if there’s a successful conclusion.

The commission is built into the price of your home. The proceeds from a sale come from the buyer. So, who really pays for the commission? You’re better off raising the price of your home and offering a fair commission than setting a sub par commission rate. Buyers agents offered sub-par may choose to take their clients to the neighbotring house first and with limited time... not show yours... You would never even know that you had lost a potential buyer. At a minimum, you should negotiate a commission rate that is equivalent to the average commission rate on the multiple listing system (MLS). Offering a lower commission rate will only result in less marketing exposure and less showing activity. The key to a quick sale at top price is getting full market exposure and leveraging the hundreds of real estate agents in your area by offering a fair commission split. A low commission is not a bargain if your home doesn’t sell or you only receive inferior offers due to low activity.

Commissions are always negotiable and the real estate industry is very competitive. Although brokers and agents are permitted to establish their own business policies with respect to commissions, if you’re looking for a “bargain” you can always find somebody that will accept a very low commission. Hundreds and in some areas thousands of agents will let you set the commission. But doing so will result in less activity and possibly an expired listing. If an agent cannot protect the value of his/her own time... how strong will they be for you during the negotition period. The commission is more than a fee for services and traditionally only due if your home actually sells. Furthermore, your advertising budget and buyer agent split are critical components of your marketing plan. So, never chose an agent on price alone. Understand what you’re paying for and the kind of services that are being offered. The best commission is the one that offers the best value and attracts the most number of buyers. The one or two points a “discount” or inferior agent may try to seduce you with should be balanced with the superior results you achieve. I, like many professionals, offer a tiered or platform of variable commissions to satisfy the needs of all of my clients and you may find just the right level for you by calling or emailing me at Robyn@RobynSeymour.com If I am not in your area... I can send you to the best realtor in your town so contact me anyway!

How Much Commission Should You Pay for a Real Estate Deal?

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