How To Understand Realtors Fees

business man smallSo- let’s talk about Realtors fees, shall we?

Times are hard, prices are down and it is normal for a potential home seller to question the fee a Realtor charges for selling a home.

In this series we will talk about how many people see commission- what is reasonable, what is the value and what are the myths surrounding various commission structures?

Today’s question:

If my Realtor represents both me (the seller) and the buyer, shouldn’t I pay less commission?

And the answer is….

Depends on what you hired your agent to do!

I hired them to get me the most money, Duh!

Ok, but here’s the thing. Sellers simply don’t realize that they are costing themselves real money when they chose to work with an agent who offers a discounted commission (anything less than 6%). Let me explain how…..

A seller who looks for a lower fee is usually making one, or more, of the following assumptions:

  1.  All agents are the same.
  2. The home will sell itself.
  3. The price will be the price.
  4. The property will get the same exposure.
  5. The service will be identical.

Go ahead, tell the truth- one or more of those thoughts just might have occurred to you.  If so, it is natural for you to want the lowest fee!  There are many agents who will work for 5% and will easily go down to 4% or lower if they represent both side of the transaction. On the surface, this sounds like a great idea, especially if you are not going to get the price you really want for your home.

The biggest question a seller must ask themselves is…

What is more important, the fee I pay, or what I end up netting when the sale of my home is completed? I strongly believe most sellers want to end up with the highest net possible and therefore sellers should focus on the agent who they are most confident will sell their home for more money, not the agents who will work for a lower fee. There are three factors that determine how much money a seller will actually net from the sale of their home.

  1. Closing Costs
  2. Agent Commission
  3. Final Sales Price

The biggest piece of this pie is the final sales price (about 92%-94%).   Commission and closing costs are just a small piece of the equation. However, many sellers are under the impression that every dollar they save in commission is a dollar they end up putting in their pocket. THIS IS ABSOLUTELY NOT TRUE!!

Let me give you an example:

In our local market there is a prominent agent who has a lot of listings who offers to work for 5%.  The fee is 4% or even lower if this agent represents both buyer and seller.  Again, to a potential seller, this looks very attractive. They think they are getting a top agent for a lesser fee. WRONG!!

If you look closely at this agent’s statistics….

The average sales price to original list price ratio is 91.9%. That means his homes sell, on average, at 8% below his listing price.  The average sales price to original list price ratio in our local Glendale market is 94.3%. This means our example agent is selling homes for 2.4% less than all other agents, on average.  So, you might save a percent or two working with this agent, but, they lose 2.4%, on average, off the actual sales price. Doesn’t sound like a great bargain to me.

However, wait….

Let’s compare this agent to my stats. Year to date my listings have sold ,on average,  at 101.2% of the original list price. This means I  am getting my sellers almost 10% more for their homes than the agent described above. My fee may be a little higher up front, but in the end my seller walks away with 8 to 10% more money in their pocket.  On a million dollar home that equates to $80,000 to $100,000!!

So what is the moral of this story???

As a potential seller…
Hire the agent who you truly believe will sell YOUR home for the most money possible based on their ability to stage a home, set the right pricing strategy, execute the best marketing plan, promote your home to the agent community, negotiate the highest sales price possible and the agent who is most skilled at navigating through the escrow process. These are the factors that really determine how much money you make (or don’t make) on the sale of your home.

About Kendyl Young

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