When you hire a Realtor® to sell your home, will they really be earning as much as you think they are? Too often people look at the total number for the agent’s fee and assume the agent will take that check to the bank. Some people think this amount is too much and may ask the listing agent to reduce the fee. Before you decide to do that, it might be helpful for you to understand how that fee is distributed. Once you know that, then you can decide whether the listing agent is left with enough money to market your home as you want. Here’s what you need to know to make your decision.
Realtors® are self-employed
Each agent operates their own business. They are not employees of their brokerage and receive no reimbursement for their marketing or operational expenses. Rather, per State law, they must be associated with a brokerage. There are all sorts of plans that various brokers offer to agents. An agent may not pay a monthly fee but will be expected to generate a certain sales volume and will receive less of the commission at closing. Other agents may opt to pay a monthly fee in order to receive a greater portion of the commission at closing. Those monthly fees can easily be higher than the agent’s mortgage payment. One way or the other, the broker gets a good chunk of money from the agent.
The Listing Commission
The fee the Seller pays to the listing brokerage is payment for marketing the home and finding a “ready, willing and able” buyer. Most brokers agree to pay (via the MLS system) a co-op broker representing the buyer for finding a buyer to purchase the home. A seller can negotiate what the listing fee will be, and the listing broker can offer the buyer’s broker whatever fee they choose. However, the listing agent is not required to discount their fee if the services they offer are superior to the services offered by ordinary agents. As self-employed people, they are free to set their fees or run their business as they choose just as any other business professional can do, i.e. CPA’s, attorneys, dentists, electricians, etc.
Should you buy a Kia or a Lexus?
Just like deciding which car to buy, you should evaluate agents based on what you’ll be getting for your money. It takes a different skill set to be a listing agent than it does to be a buyer’s agent. Rather than just relying on what the agent tells you they’re going to do, check them out on the Internet to see what they are currently doing with their listings. Can you find their listings? If you can’t, neither can your potential buyers. What is the quality of the photos of their listings? Are they dark, blurred, crooked, or unstaged? Do you want the photos of your home to look like the photos the agent is currently taking? Read the descriptive copy they have written about their current listings. How much effort have they put into describing the features/benefits of the home or is it merely 3BR, 2.5 bath 2-story? Don’t be afraid to ask for examples of their marketing materials. Ask how many homes they’ve sold recently, what price those homes were, and just as important, how many expired or withdrawn listings they’ve had recently which can indicate unhappy sellers.
Run the numbers
If you expect your agent to implement a top quality marketing program, you need to consider whether they will actually be earning enough to pay for that program. While you won’t be privy to the commission split between the agent and their broker, you can calculate a range for their gross earnings. Start with the price of your home. Then multiply that price by 2%, 3% or 4% to reflect a total commission fee of 5%, 6% or 7%. Then multiply the 2-3-4% figure by 50% and 90% to get a potential range of the agent’s earnings.
Here’s a simple example: Assume your home sells for $200,000 and you want to pay a listing commission of 6%. The agent would gross between $3000 to $5400. From that money, they must pay all the usual income taxes, their overhead costs, gas to travel to your home, marketing materials, print ad costs, and of course, receive payment for their time for the duration that it takes your home to sell.
Once you know the numbers, you can decide whether the agent will be able to afford to conduct the level of marketing or service that you want. You may find that you either need to lower your expectations or raise the amount you’re willing to pay. Likewise, the agent will be making a judgement as to whether listing your home is a good or bad business decision.
It’s like having a deck built
If you were to have a deck built, you probably would meet with 2 or 3 contractors to get their quotes. Each contractor will have differing levels of expertise. They will show you examples of past jobs. They all will tell you that they are the greatest thing since sliced bread. If one comes in with a quote that is much cheaper than the others, you would question as to what corners that low-bid contractor is going to cut in order to offer such a low bid. Do you use the cheapest dentist? OUCH! Or the cheapest lawyer? JAIL TIME! You should go through that same thought process when selecting a Realtor® as the same principles apply.
You get what you pay for … and you can’t buy a Lexus for the price of a Kia. Likewise, make sure you’re not paying a Lexus price for a Kia. Shop wisely.
Copyright © 2010. Elaine Reese, Real Living HER. Reproduction of any portion of this blog post or the images is prohibited by the Digital Millennium Copyright Act. If this post is being viewed on any site other than www.ReesesPiecesOfRealEstate.com then the material has been stolen without permission. Violators will be reported.
Real Living HER continues to be the #1 real estate broker
Elaine Reese
614-825-8860Real Living HER379 W Olentangy StPowell Ohio 43065
Assisting home sellers and buyers throughout Central Ohio in achieving their dreams.
