Talking to Real Estate agents about commissions can be kind of… uncomfortable.
To discuss commissions with an agent can feel like asking them to hand over their paycheck for inspection and approval. It’s much easier to just swallow the questions and go with whatever the agent says, isn’t it?
But I know you still have those questions. And I care about helping you make informed decisions. I hate seeing people get manipulated or taken advantage of just because they don’t know the facts.
So let’s do it. Let’s talk about some of those burning questions about REALTOR® commissions.
What is the going rate for commissions? You won’t like this answer. It’s negotiable. One of the considerations is what competing sellers are offering as a commission to competing agents who may have a buyer for their property. In areas where properties frequently sell in a week, the commission my be lower than in an area where it frequently takes months. The main reason for this is that the longer a property is listed, the more it will cost the agent to market it. Those costs need to be reflected in the commission. I have personally charged as low as 3% for a family member (we still offer 2.5% to the selling agent) and as high as 7%. For the record, if I did not give birth to you, I will absolutely not list as low as three percent for you regardless of where or what you are selling!
Why do commissions vary so much?
There are a few reasons for the variation. One is local market. Other considerations are:
-What the agent offers. If no marketing is planned, the commission may be less. More marketing will cost the agent and need to be paid for out of their commission.
-Greed. Whether it’s wanting the high dollar (through a higher commission) or to get the most listings (perhaps through a lower commission), it’s a factor sometimes.
-Negotiation. Sometimes a client can negotiate a commission up or down to get the services they want. -There may be more than one person being paid to work for you. Some teams have administrative staff working behind the scenes that also get paid.
How much do Realtors Make?
Not as much as you think. The commission charged is shared between broker of the listing agent and the broker of the selling agent. Often it is shared 50/50. (At 5% that would leave the broker with 2.5%) The broker then pays the sales staff a percentage of that amount. That percentage varies depending on the office policies and agreements between office and agent. Most work on a commission split which can be as high as 50% of their paycheck! Subtract all the advertising and marketing expenses (professional photography, advertising, signage, etc.) incurred to sell the property. (This can range from hundreds to thousands of dollars)
Out of what’s left, the agent must pay mandatory licensing fees, franchise fees and, very often, they are also required to pay rent and fees to their broker. You know – office space, etc. Then there is just the everyday business expenses like vehicle insurance, car payments, phone bill, internet, fuel, office supplies, etc. Do the math. These kinds of numbers are why it’s a dog-eat-dog business. This is the stuff that sends a lot of newbies packing in their first year.
When all is said and done the Real Estate Professional may only net approximately 20%-30% of the gross commission collected at the end of the year. Hopefully that will be enough to cover the income tax payable to the government.
Are Commissions negotiable? Yes, but if you’re going to negotiate, I have three words for you. Do it carefully.
It can be risky to demand of and stomp on someone who you expect to work for you.
Not unlike offending the dentist with all the sharp tools in your mouth, or blasting the restaurant cook and demanding a new meal, making huffy demands is risky. What you don’t know about commissions – and the message they send to other agents – is dangerous to your deal.
Basically, if you’re going to negotiate, basically be respectful. Real estate agents are people too. And some of them really do have your best interests at heart.
Why should I pay that much just to have them sell it in a week? Review the answer to “How much do REALTORS® make?” Those numbers all apply whether the property sells in a week or 10months. The only difference is that the 10 months didn’t come by and eat up all the agent’s profits. Good for them. They got paid.
So did you. Go celebrate!
HINT, HINT, NUDGE, NUDGE…Perhaps it may be important to ask the question, “What services do you offer at that commission?” There is a vast difference in what services different agents offer at the same commission. You can pay the same commission to many agents but you won’t get 5 star service from all of them.
Don’t make the mistake of being so focused on how to get the lowest commission just to find out that you got no VALUE for the commission.
In conclusion, most Real Estate Professionals will charge you the same Commissions as the competitors. You can hire a rookie or an experienced agent for the same commission. It would seem more logical to look for the agent who will do the most work for their commissions.
Of course you will want to be sure that their work results in sales.
I will make it easy to ask us. You can request our digital pre-listing package ,otherwise known as a resumé, to learn about our services and qualifications.
Tina Plett, Sutton Group-Kilkenny Real Estate
He had seen the house a few times, and loved it. Who wouldn’t? The ornate carvings surrounding the fireplace and trimming the grand staircase were among countless eye-popping details. The owners had spent decades adding many intricate details. The price had been reduced by over $40K, bringing it down the half-million dollar range. The buyer had been shopping within the original price range, and adored everything about the place. He decided to write an offer.
And what did he offer for this already-reduced home that he absolutely adored and couldn’t wait to own? He offered $50K less than the reduced price.
That’s over 10% of total asking price. (When’s the last time someone asked you for fifty thousand dollars?)
Just to get some perspective on this, think of the last time you listed your property for sale. Remember the price? Now imagine someone making an offer for 15% less. On a $250K home, that would be $37,500 of your money that the buyer expects you to fork over. Now imagine you had already, perhaps out of desperation, reduced it by that much. Now we’re talking about $75,000 of your hard-earned cash.
… Are you getting the picture of the unabashed greed going on here?
What’s worse, this is happening more and more.
Ever since people heard it’s become a buyers’ market, buyers have interpreted this as their right and obligation to hold sellers over a barrel.
What they misunderstand is that a buyer’s market is not a bully market.
What “Buyer’s Market” REALLY Means
A buyer’s market has little to do with price.
It means that buyers have more selection in their price range. Options are not scarce as they were in the sellers’ market of five or ten years ago. There are many choices in every price range. Aren’t you lucky?
It means that buyers have time. No more do they need to race an offer in to beat out competing buyers. No more do they have to decide after seeing a property once. Buyers are not time pressured, and have the luxury of being able to look, and look, and look some more.
Instead, many people are low-balling right now, and some are doing so offensively.
If you’re planning to offer in the near future, don’t demand tens of thousands of dollars from strangers just because you misunderstand the term buyers’ market.People don’t owe you their home equity any more than you owe them yours. It makes you look rude and dumb and downright greedy.
Don’t be that guy…
** Just a note about “that guy” — the story I share is a fictitious creation – a culmination of numerous people and characteristics. I guard carefully the privacy and dignity of my clients, colleagues, and others I come into contact with. This story was meant to illustrate a general common occurrence, not identify any one person or deal.
The amount and size of increasing low-ball offers though, is a real, accurate depiction**
You want to save money.
Better yet, both.
I get it. I want that too.
So when it comes time to sell your home, you decide to sell privately in order to save yourself that pesky commission. This sounds sensible and appealing.
It’s interesting what happens in people’s minds when they begin to imagine large amounts of money. Whether they imagine selling for a big price, or envision saving big commissions, it’s almost as if a switch is flipped, and they want more. More. MORE! Their decisions soon follow a predicable downward slope.
Maybe I can save some much-needed money soon becomes, Hey cool, I can determine my own price. That thought quickly becomes, I can determine as high a price as I want because it’s my house and no one can tell me what to do. This mentality quickly descends into My house is worth 50% more than anyone else’s because I changed the carpet ten years ago, and because I’m not willing to sell for less, and that’s the end of it. If they want it, they’re gonna have to pay. Heh heh. (Insert Grinch-like grin and the rubbing together of hands.)
This doesn’t just happen with private sellers. I’ve watched this happen with clients. Despite my highly researched, professional estimate of market value, they demanded I list their home above market value. I did it, and felt uncomfortable for the duration of the listing. I used to think I was treating people with respect by listing their home above market value because they asked me to. I realize now it is not a loving thing to do at all. By agreeing to list the house for more than what it’s worth, I sabotage the deal, and make it nearly impossible to get full market value.
How does overpricing sabotage the selling price? I’m so glad you asked!
I can tell you from experience that an overpriced listing will go through this cycle.
The data shows what market value is. The seller lists tens of thousands of dollars above market value. People look at the property, but no one puts in an offer. After a while, the listing becomes stale. The public begins to assume that there must be something wrong with the house because it has been for sale for so long. The seller begins experiencing anxiety, and lowers the price. Then lowers it again. And again. Eventually, months and months down the road, something has to give. Usually, due to personal deadlines and fear, the seller will give in to an offer that is well below market value.
In one case however, they were not so lucky, and the bank repossessed the house.
As a result there is no return on the investment for the Real Estate Agent who spends their own money(sometimes borrowed money) to advertise the property. I cannot think of any reason why I would want to spend my time and money again on a listing that will not sell.
I have heard some agents argue that an overpriced listing has value for them because they can still pick up buyers from the listing and make money off of the buyer’s. That is in fact true.
However, when I list a property my fiduciary duty is to be loyal to the seller. I desire to get the seller top dollar for their property. I know that if I list it over market value then that simply does not happen.
How to Keep This From Happening to You
Luckily, you can learn from the mistakes of many who have gone before you. I’m all for saving money. But don’t let greed cloud your judgment.
The biggest mistakes these sellers make is completely ignoring the factual data from their trained, professional real estate agent. They were determined to stick to a price simply because they wanted what they wanted. Whether it made sense or not. (I’d like to sprout wings and fly, but all the stubbornness in the world won’t make it a reality.)
Basically, getting rid of the “I’m the king of the castle” mentality will pretty much guarantee success in this and most ventures in life. Because sellers are not the only people or considerations in the equation.
Key points to remember:
- A buyer is not willing to pay more than market value (they research too, by the way)
- A buyer is fully aware that if you’re selling privately, you’re saving the commission – they expect to save that amount too, when they purchase. If you want to slide the commission portion back into the sales price, think again. Buyers can do math too.
- The bank will require an appraisal on a private sale. If the appraisal reveals the value to be less than asking price, they will not approve the mortgage.
I want you to save money and time too – and this is how: keeping the price real, and your greed at bay. It will save you the cost of lost value, and the time of trying to get more than you deserve.
Keep it real.
I’m saddened by an unfortunate experience with my clients.
And it happened because of the four difficulties that come from working with private sellers.
I share the story to encourage or equip agents when dealing with private sellers. Or perhaps to advise them to think again. I also share this story as a warning to sellers so they can experience success instead of loss.
Recently, a lovely young couple asked me to help them find a very specific kind of property. As soon as they described what they wanted, a property came to mind. It was a perfect fit. There was just one problem. It wasn’t listed.
I remembered though, that the owners had wanted to sell it in the past.
Allow me to stop here to tell you that I have helped my clients purchase for-sale-by-owner properties before. Every one of those experiences was painful either for me, my client, or everyone. So I wasn’t altogether excited about repeating the process. Still, the property was absolutely, completely, irresistibly perfect for my buyers. So I approached the owners. Perhaps they were still interested in selling.
What soon followed were four of the biggest, and most common, reasons that I, and many other agents, would rather avoid working with private sellers.
Five Reasons Agents Avoid Working with Private Sellers
Working for Free for Strangers
The thing about private sellers is that they don’t know what they don’t know. Like their house value for starters. How do they know any offer an agent would bring would be fair? The buyer’s agent often ends up educating, advising, and even assisting the seller without any compensation or even appreciation.
In one case, I advised a seller to get an appraisal. But I sure wasn’t about to do it. Conflict of interest much? In the interest of transparency and unbiased fairness, (and helping move things along for my buyers) I arranged and paid for an appraisal out of my own pocket.
Not only was I not compensated for the expense or even thanked for going the extra mile to be very clearly on the up-and-up, but I was treated with contempt for it. Unfortunately, this is a common thing with private sellers. Which brings me to the next point.
Being Treated Like a Slave
There’s the working for free mentioned above, and then there’s slavery.
For some reason, people think a buyer’s agent should work for free. This is especially true for private sellers.
One couple who had once upon a time listed their house, built in a 5-6% commission for the selling agent. When I approached them with a buyer, they fought with me about payment, insisting I should get nothing for brokering the deal.
Basically, they think they can bully agents. There’s no relationship – not a personal one, and most certainly not a professional one.
Being Treated Like a Murder Suspect
Private sellers tend to treat buyers’ agents like they’re selling mismatched knives out of a trunk.
I’ve stood on the front stoop in winter, without being invited in, and explained how my buyer wants to buy their house, only to be looked over with a raised eyebrow. Do they think I’m trying to trick them out of the deed to their house?
One time I presented my buyer’s conditions, one of which was a satisfactory water test. I even did the sellers a favor by furnishing them with the sample kit. Their response? Accusation.
“You’re just doing this for the buyer’s advantage!” they said.
But it’s a standard requirement from the bank. They won’t even fund a mortgage without a water test having been performed. Besides that, I’m not actually a selfish creep who’s out to get you. Everything I do, I do for the benefit of both parties. Thanks for the implication, though.
Look, I can understand why sellers would feel guarded and protective. Between all the door-to-door scams, robberies-by-phone, and fraudulent emails happening these days, a person needs to be careful.
But that’s what seller’s agents are for – to protect sellers from any creepy, horrible, out-to-get you agents who try to bring buyers for your house.
Directing a Soap Opera
The thing about dealing with people is that everyone is dealing with something. Maybe they’re selling because of a divorce, or illness, or even death. Maybe there was a job loss and the financial situation is critical. Maybe the couple just doesn’t agree on anything, including the price, or whether to sell at all.
Wading through those waters is generally the seller’s agent’s role, and we’re happy to come alongside.
When there’s no seller’s agent though, there is no buffer between the seller’s drama and us, the buyer’s agent. Suddenly we have to navigate the personal stuff on both sides of the boat. It’s tricky, it’s demanding, and actually it’s pretty doggone impossible, given the previous three points.
The Biggest Deal Killer of All
This one’s not specific to private sellers, but they sure can sport a streak of it. The biggest deal-killer? Greed. Too many deals have fallen through and houses lost because of plain, old fashioned greed.
In one case, my buyers had offered the private seller Thirty Five Thousand Dollars more than the appraised value of the place just because they wanted it so badly. The seller’s response? They wanted more. They wanted an additional Twenty Five Thousand Dollars.
Allow me to gaze into my crystal ball here for a minute and tell you what’s going to happen to them and anyone else who overestimates the value of their house and refuses to accept less.
Ah, yes. I see it. A cloud looms in the distance. The house stands alone and sad looking, its original owners pining for the money they will never, ever see. Oh, and there – I see the banker raising an eyebrow in confusion. He shakes his head and snickers at the idea of lending more than a property is worth.
As long as sellers insist on getting more than a fair, sensible, and realistic price for their properties, deals will continue to die at the feet.
Sadly, the young couple I represented fell victim to some of these private seller behaviors. My buyers were respectful, flexible with the seller’s schedule, accepting of the seller’s terms, and even generous with their offer but, as often happens, the deal fell through. They were unable to purchase their dream property.
The not surprising final outcome.
My buyers found a much more appealing home that offered them way more value for their dollar. They have moved in and enjoy their new space.
The seller listed their property and eventually sold it for less than the offer that my buyer wrote and they paid a full commission for the sale.
I love getting dirt under my fingernails in the flower garden.
And the way dirt crumbles in my hand.
I especially love the way weeds pull right out sometimes, root and all.
Recently, when I was down on my hands and knees digging in the dirt, my little dog joined me. At first, she supervised nearby for a few minutes, possibly to see what treasure I would unearth. As I continued pressing my hands and tools into the soil, pulling out weeds, and humming, she decided to dive in right next to me.
She claimed a patch of weeds right beside me and set her paws to furiously digging. Dirt and leaves flew everywhere, even onto me. I paused my weeding to watch (while guarding my eyes from flinging flecks of dirt). She worked and worked, finally digging a little pit for herself. Then she stood in the middle of it and plunked herself down, nestling as deeply as she could into the cool earth.
I smiled, petted her, and returned to pulling weeds.
In the quiet, I thought about how she and I were both digging in the garden but for different reasons. I want the flowers to be visible and not crowded out by weeds, and she wants a cool place to sit.
We all have different motivations for doing what we do.
Many people can do the same thing, but for different reasons.
I’m a real estate agent, but my why might surprise you.
It’s not for the money (It’s not as much as you think anyway)
It’s not for the glamour (People tend to see agents more as salespeople than industry professionals)
And it’s definitely not for the primo hours and awesome vacation times (Days off can be hard to come by. Heck, attending a wedding uninterrupted can be hard to come by!)
No, I’m an agent in spite of all these challenges.
Because I’m a helper and encourager at heart, and I love, love, love to help people find their perfect-for-them home. As an agent, I get to protect people from pitfalls, walk them through scary and difficult circumstances, and make them super crazy happy.
Those are the things that satisfy my soul that I count as excellent results, and that drive me forward each day.
What motivates you in your work?
I LOVE my job – It’s got adventure, variety, and the deep satisfaction of helping people find their perfect-for-them home.
Last month put that love to the test though, I’ve gotta say. From every angle, side, and corner, various Boogiemen leapt from the shadows.
Here are a couple of general examples of conversations that may or may not have happened recently.
Client: “Hi, Tina?”
Me: “Hi, how are you?”
Client: “Hurry!!! I NEED to see this house RIGHT NOW!!!!”
Me: “Umm… you know people still live in it and need some notice, right? They might have babies napping or–”
Client: “–I don’t care! I’m parked outside of their house right now! Get over here!”
Me: *bangs head on desk*
Me: “Hi. My client would like to make an offer on your listing”
Agent: “We already have someone else interested.”
Me: “Uh… it’s for sale, is it not?”
Agent: “Yes, but they don’t want offers.”
Me: (I wonder if the agent is blocking offers from other buyers so they can double end the deal… His clients wouldn’t appreciate that. Too bad they’ll never know. Man, I can’t wait until they make that illegal (like they are about to in Ontario.) In the meantime…
Me: “Okay, I’ll bring an offer. My buyer will pay every dollar the seller is asking and then some.”
Agent: “Go ahead, but they’re not going to take it.”
Me: *bangs head on desk*
But then there was the buyer who said something shocking to me this week.
We’d been working together to find them a house, and it was… difficult. They did not have access to internet and that felt crippling. They’d had a nightmarish, stressful relationship with the builder of their home right from day one. For years, that stress robbed them of the joy of living in their custom built home. Now they just wanted out.
Because of their worn-down, stressful state, they were not only deeply sad and exhausted, but also in a desperate hurry. Not a good combination. They had three weeks to find a new house.
That’s like giving yourself ten minutes for a 1-hour grocery shop. It’s insane. Like, reality TV, run through the aisles like a madman, plowing down women and children kind of crazy.
So here we were. Dashing like madmen.
Whose hair was on fire.
The hardest part for me was seeing how the anxiety had pulled their faces into hard lines over the years. They weren’t the most expressive people, and I’d never seen them smile. Not once. Years of annoyance can make a person cranky and it made me sad that their home-owning experience had done that.
Plus, knowing they would probably settle, desperate for a new house, I was sad they would likely repeat the disappointing experience of owning a home they didn’t want.
We hunted. Looked at loads of houses. In person.
When we finally came across the one that struck them as home, I was excited because I knew something about it they didn’t.
“Ah, I know the guy who built that house. He’s a new, young builder trying hard to please people. He does quality work and treats people well.” I said.
That was all they needed to know – that they’d be treated well for once.
The buying process was difficult – sometimes it seems like agents don’t want to sell their listings, and this was one of those times. After working and working at it though, we did manage to get the house.
* * *
One week after the couple moved into their new home, I was walking up their sidewalk to check in. (They appreciated the personal face-to-face approach.) As I neared the front door, I wondered if this stressed out, anxious, desperate couple with their faces pulled in hard lines would have anything good to say about our working together. Had it been pleasant at all? Would they feel they had been treated well or that the whole thing was worth it?
With all these thoughts swirling in my mind, I rang the bell. The door opened, and there stood before me a woman I almost didn’t recognize. Where before a permanent frown had been carved into her face now shone a relaxed, upturned smile. Her eyes that had looked dead and empty now seemed to shine, almost laugh.
I mentally willed my mouth not to gape open in shock. “How’s the new house?” I asked.
That’s when she said what I never thought I’d hear from her.
Her smile expanded into a full out grin. “It feels like home.” She sighed and her eyes went dreamy, “I’m happy.”
I nearly cried on the spot. “Wow – after a week it’s feeling like home already?”
“From the first day it felt like home.” She raised a palm to her chest as though speaking of a loved one, “Tina, the chains have come off and we are free. … I’m happy. So happy. The grandchildren love it here too!”
I almost burst into tears. She was happy?
That moment was worth every difficult, head-banging, hair-pulling moment before it.
THIS. This is why I do what I do. This is why I love working as a real estate agent.
I floated back to my car and through the rest of my week, grateful for the reminder, blessed by the satisfaction of having helped someone and then being able to see that dramatic transformation.
These are the moments that fuel us through the hard days, aren’t they?
What one memory or thought keeps you going through your hair-pulling days?