Image courtesy of teliko82
This weeks top Trulia Voices Question comes from John, a home buyer and home seller from Birmingham, Michigan. He wants to know which option would be “better” when it comes to selling his home:
1. Hire agent 1 at 4% commission and list the house at $392k
2. Hire agent 2 at 6% commission and list the house at $400k
Both agent 1 and agent 2 says they will pass 3% to buyer agent.
In both options, I end up having $376k in my pocket.
Thoughts from our Trulia Voices Real Estate Community
Emily Medvec, a real estate agent from Sante Fe said, “I recommend looking beyond your selling expenses especially given the yield on both options 1 and 2 are the same. In my opinion, the bottom line depends on the property being offered at the right price based on a thorough comparative market analysis rather than math related to selling expenses.”
Bob McClure, a Mortgage Rep from Farmington, Michigan said, “My suggestion is to try for the second scenario…..also..the commission split is important too…perhaps offer the sales agent a half a percent more….it excites agents to show your home if they know they are getting an inch more commission than the rest of the co-op fees are paying in your area…..lastly.if you get an offer in that seems low…you can alway go back and re-negoitate the commission if you feel it necessary…..perhaps even put that in the listing agreement….”
Real estate Broker/Owners Ed and Cindy Knight from Macomb County said, “agent 2 will have much more money for advertising, which they will need in this maket. But have them price it at $399,900. Just make sure your price is the same as others like it, otherwise it really won’t matter. Honestly buyers looking at $392 will also be looking at $400 so let them make an offer.”
Derek Bauer, a real estate agent from West Bloomfield, Michigan asks, “What are they going to do for you? How are they going to get the job done? What is not only their marketing strategy, but their understanding and use of the Internet? How will they work, communicate, and interact with the likely savvy and informed consumer in that price range that will purchase your home?”
Scott Sowles, a real estate agent from Clarkston gets my vote for the best reply: “Your question, rephrased, is this: What has more impact on my sale - a listing price that’s 2% lower or an $8,000 incentive for my listing agent to make sure my house sells?
I can’t answer for all agents, I can only answer for myself. I charge the 3% because I earn it. I use the same floor plan tour that Derek mentioned below. I highly value showing feedback and pay an assistant to help me compile feedback from more than 80% of our showings. I have invested heavily in photography equipment so that I post a large number of superb photos online. And by online I mean over 60 web sites - not just the same old sites that the IDX and Realtor.com provide. I place color, laminated flyers in front of the home and feature books inside. I do much more but you get the idea…
The bottom line is that, since the marketing I just described drastically helps get your home sold, you should be paying your listing agent the full commission. However, if the listing agent is just doing the 3 “P”s - Put in the MLS, Put up a sign and Pray then go with the price reduction.”
My Thoughts
There are many factors that come into play when it comes to selling a home. Pricing the home right from the beginning is one of the most important if not the most important thing the seller/listing agent must do. The amount of real estate commission agreed upon between the home seller and listing agent is only one part of the marketing/listing agreement. Both parties need to understand what will and will not be done - past proof of success can go a long way in helping a seller make a rational decision when selecting an agent. Anyone can price a home lower than “market value” or offer a higher commission than the next guy. In my opinion, it’s “how” they get the job done that makes all the difference in the world - it’s all in the details folks.
What do you think is a better home selling strategy?
Popularity: 33% [?]
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August 11th, 2008 at 1:21 pm
Rudy,
Great Question! There were some great blog posts on this in May that showed that homes did not sell faster or for higher prices when Buyer side commissions were over 3.0% The posts I read showed that houses tended to react the best to a 2.5% - 3.0% strategy for buy side compensation.
Discounting the price in California $8,000 really will not do much to create more activity on a $400k purchase price. The offers on those properties are already coming in $25k below ask on average.
Unless that $400k home is highly upgraded and in great shape, it’s going to take more incentive than that. Buyers routinely ask for more in closing costs. I am not say the buyers are geting all these concessions, but this is the climate around here at this point.
August 11th, 2008 at 5:49 pm
I would suggest they interview and hire the agent that can do the absolute best job for them. I agree with you that it is HOW they do they job, and the best way to ascertain that is through references. The commission amount does not indicate an agent’s skill set. There are plenty of bad agents who charge 6% too. A good agent can easily net that client far more than $8,000. A bad one could cost them twice that much or even more.
August 11th, 2008 at 6:09 pm
I list for 6 to 7% depending on the property and pay out 3% to 3.5% to buyer’s agents. I’ve sold 8 properties in less than 19 days in the last 15 months and another 5 in less than 22… in a market that will have 41% of the listings sell.
But that isn’t because of my “brilliant marketing” or ridiculous inducements… it’s just a fact that in this era of 100% finance-is-dead the vast majority of buyers are local buyers, who know there areas, need help getting closing costs paid and really don’t have cash left over to make repairs. My strategy for sellers (65% of my business) is to help them think like their future buyer. That future buyer is probably scared, cash-poor and overwhelmed with options. They’ll likely (not always) chose the best value. Positioning as the best value has to do with exposure, but most notably, condition and price correlation. So I pay to have every listing professionally staged (including a $130,000 townhome today), professionally photographed, anything major pre-inspected and repaired if necessary with receipts in the property and online and carry a home warranty. I’ll pay for a 10×20 storage unit if the home needs to be emptied of furniture. Then after it’s photographed and gussied up, it goes on 1.2 million websites (a really nice feature of ERA.com), including this one automatically. So there is no way a buyer can’t see it, repeatedly, in a high-profile, well-represented, online environment.
It costs a lot more to make a product high value. I have no idea what the market is like in Birmingham, MI, but the question a seller should ask is this: “which option puts me in the best negotiating position possible?” Only the seller can answer that. If they are down-sizing and need cash, that’s one motivation. If nothing is selling and they are relocating to an area that is selling, they may need to blow it out to sell it. There just aren’t these uniform, one-size fits all answers.
August 12th, 2008 at 10:44 am
I have to agree with a couple of the prior comments. Hire the Realtor who can do the best job. Don’t go with a Realtor who is semi-retired and is a friend of your Aunt’s. This won’t get the job done. Hire someone who is active and does a significant of marketing in your area. The commission rate doesn’t matter to you since the net proceeds are the same in each case. In this day and age, many consumers find the property on their own and then drag their buyers agent along with them. Be sure to work with someone who will get this property in front of the active consumer (web and local papers).
Good luck.
August 28th, 2008 at 12:31 am
Good post Rudy.
This isn’t perfectly related, but we actually studied thousands of listings and found that a higher commission to the buyer’s agent does not lead to a higher price:
http://blog.redfin.com/blog/2008/03/real_estate_commissions_typical_is_boring_but_when_selling_a_home_effective.html
October 10th, 2008 at 7:46 am
Except in areas where the agent has complete control over what the client sees, commission is irrelevant to the sale of the home. Certain commission rates are more likely to cause a salesperson to act, but high or low commission does not affect the selling price.
Condition and negotiations effect the price. As a side note, out-negotiating a unrepresented home owner is the sweetest deal on the planet for my buyers. The same goes for those using reduced service brokers where the broker has reduced the negotiation effort. Again, a huge win for the buyer if they are using a good agent.
Great post!