When you buy or sell a house, you expect that your real estate agent will be completely honest and up-front with you. In my experience, most are. In some cases, though, you might be surprised what goes unspoken. Read on.
Commissions are always negotiable. Always! Always! Always! This is especially true when the economy is doing well and the real estate market is booming. The more listings the agent can get, the more properties he or she can quickly unload, and the more quickly those commissions add up—and if taking a lower commission is they key to getting those listings, you can bet they will do that (especially if prices are skyrocketing!). But regardless of the market conditions, “always” always applies! Have I said “always” yet?
Here’s why. The Sherman Antitrust Act forbids real estate brokers from agreeing upon a “standard” commission structure. Two or more brokers so much as discussing their commission rates could be seen as a potential antitrust violation. (It is of course true that, in practice, most commissions fall within a fairly similar range—but don’t let that fool you for a minute, commissions are always—always!—the result of individual negotiations between the agent and the client). A savvy broker will recognize that these days, not everyone even has enough equity in their home to pay the “standard” rate even if they wanted to. If he or she won’t budge, unless that particular brokerage offers some sort of amazing service that nobody else can offer, my advice would be to move on; a broker who refuses to see eye to eye with you on this part of the transaction just might refuse to see eye to eye on other issues as well.
All those newspaper ads are marginally useful at best. It’s true. Having a photo of your house in the paper, or in one of those glossy “Homes for Sale” magazines you find on a rack on your way out of the grocery store, is great for your broker. The message that is actually communicated to readers is, “Look at how many listings I have! You should call me!” That’s fantastic for your broker, but not much good for you. Want proof? Check out this graphic, based on 2008 data from the National Association of REALTORS®. A mere 4% of buyers’ first exposure to the home they wound up buying was through print media…and an advertisement in a wide-circulation newspaper or magazine can cost hundreds of dollars per publication (or much more once you start talking about large, full-color spreads).
Let me back up quickly to reiterate this. That’s right. 4%.
So then, what do fancy print ads do for you, the seller? Well…they give sellers the impression that the broker is going all-out in his/her effort to sell your house…and give your agent an excuse to charge you a higher commission! (Of course, I will always submit print ads for my own listings as part of my overall marketing package if sellers prefer that I do so; however, I do adjust my own commission rates upward a notch to compensate. The choice is always in the seller’s hands, as it should be.)
So then, how do most buyers find their new homes? Let’s go back to the aforementioned chart. The fact is, 90% of buyers found their house through friends/neighbors/relatives or the seller directly, through their own internet sources, through a recommendation from their own real estate agent, or by simply noticing a yard sign while driving around.
That’s right. 90%. For what actually takes very little work.
Yard signs are cheap. Internet listings are, for the most part, free (for example, listings that a REALTOR® enters into the Multiple Listing Service here in Los Angeles are automatically indexed on more than 300 different real estate websites!), although a good agent will know which sites to best target (especially true for “niche” properties such as architecturally significant homes). The MLS costs your broker money, of course, but that’s a requirement for doing business anyway. Word of mouth most certainly is free.
So consider that when you’re discussing commissions with your agent.
Open houses are not necessarily for the seller’s benefit. Consider the odds of a random person walking in to your open house and 1) deciding the house perfectly meets their criteria, 2) not liking any other houses they may see before or after better, and 3) actually being in a position to buy at that precise moment. I have no doubt that this occasionally does happen, but I have only once or twice personally observed this.
According to NAR Research Economist Jessica Lautz, 46% of buyers used open houses when searching for a home, but only 10% found them useful. I haven’t been able to pin down any precise statistics about how many buyers buy a home they first see at an open house, but anecdotally, my guess would be in the very low single digits (I remember hearing somewhere between 1-2% at some point, though I want to emphasize I have no data with which to back up that statement).
So why do brokers love to hold open houses so much? Of course, it gets your house some exposure, but it’s a surefire way for the broker to get more business. Think about it: who shows up at open houses? 1) People who are kinda-sorta looking, but not seriously enough to think about going out with an agent. 2) Neighbors who are curious to see the house because they’re considering selling theirs at some point in the foreseeable future. 3) Neighbors who are curious simply because they like the idea of looking in other neighbors’ houses, but aren’t planning to sell their house anytime soon (but who just might happen to remember your agent’s name if and when they decide to sell).
Hello! Open houses are gold mines for brokers! Not so much for the sellers.
Here’s the kicker: once again, agents use open houses to justify higher commissions. Don’t get me wrong—I actually agree this could be appropriate if the seller wants to have unusually frequent open houses, although an open house itself costs very little (or nothing at all). Consider, though, that most open houses are held on the weekends, which takes away time from their ability to tour other homes with buyers (who, incidentally, also tend to be most readily available on the weekends).
By the way, if you do plan to hold open houses, be sure to ask your agent whether he or she will personally be in attendance. One age-old tactic is for your listing agent to arrange the open house but send a newbie agent who doesn’t have any clients of their own and therefore has their Sunday afternoons free, while your agent is out with other clients. This is great for the new agent since they get to build their own database of leads, but bad news for you, since the substitute agent probably doesn’t know enough about your house to most effectively communicate to visitors your home’s most salient “unseen” strengths (for example, if you’ve paid off a special tax levy in full instead of opting for annual assessments, or if you’re including a number of custom-built pieces of furniture with the sale).
However, a bargain-basement commission can come at a cost! Despite the above, the old adage of “You get what you pay for” is still true. Your agent’s performance could certainly be impacted if you go too far in pushing for a “rock-bottom” commission while demanding nothing short of the royal treatment for your home. By that, I simply mean that there is less incentive for your agent to put your property on the top of his or her list. Obviously, he/she owes you a fiduciary (and legal) duty to put forth a good-faith effort to find a buyer for your house. But you can bet that when deciding whether to call back another agent who has an inquiry about your house, or another agent who has an inquiry about a separate listing with your agent’s “normal” commission, guess whose call will be returned first? Talk frankly about this possibility with your agent; if he or she is more than momentarily hesitant about accepting a listing with a lower commission, consider finding someone who is not hesitant but who still has a proven track record of sales.
In that vein, consider that most agents work for a broker who takes a sizable cut of their commission earnings. Consider pairing up with the broker directly, or think about finding an experienced agent who works for a brokerage that takes a smaller percentage of its agents’ commissions—many so-called “flat-fee brokerages” will do just that—and which will in turn allow the agent to be more flexible with his or her fees. (Shameless plug, of course: Perkins Realty Group can meet you on both counts.)
Up next…Attention Buyers: What Your Real Estate Broker Doesn’t Want You to Know!
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