Do you think it matters if you use a 5% or 6% commission?
Rob LawrenceBusiness Member
Real Estate Agent · West Chester, PA · Member since 2017 · 270 posts · 97 votesDo you think it matters if you use a 5% or 6% commission?
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Hi @Rob Lawrence, commission amounts absolutely make a difference, the specifics of which I'll hit in a second. The laws and normalities of different states vary a lot, but in my experience, certain principles are true across any market.
The vast majority of buyers purchase homes through agents. In my market, those agents are typically accustomed to earned 2.5%-3% of a property's purchase price for their work. There are agents who will work for less, and there are agents who will charge more. However, for decades, 2.5%-3% to each agent has been the typical and customary fee.
What this means is that if you're offering less than the typical commission amount for your area for a buyer's agent to bring their buyer to your property, you will always tend to get less of their attention. I'm not talking about the morality or ethics of any of it, I'm simply talking about human nature. If an agent has two similar houses to show to their buyer in an area where they normally receive 2.5% for their work, and one house is offering 1.5% commission, and the other is offering 2.5%, you can bet that that agent is going to be a whole lot more interested in showing their buyer the house offering the standard commission.
Now, your original post asked about the difference between 5% and 6% - I'll speak to that as an agent in Southern California. When I take a listing, I never ever offer less than 2.5% to a buyer's agent, because in my area, I know that will do nothing but hurt the attractiveness of my property to other agents, whom 99% of buyers are using - even if that means I end up making a lot less than the buyer's agent.
I suggest you research your area by asking someone you trust what the typical buyer's agent commission is in your area. That will give you your answer.
For what it's worth, selling a home is actually very easy to do, agents make it sound super complex in order to make themselves sound smarter, but it's a load of crap - navigating the escrow is the complex and risk-fraught part, selling the house is easy. The top things you should make sure are in order are the following:
1. Your pictures/remarks. Buyers typically only buy homes after seeing them, but they won't bother seeing them if your pictures and comments suck. Don't cheap out, hire a professional photographer.
2. "Showability." How easy is it for buyers to see your home, and is it clean and presentable once they get there? A vacant house with a lockbox is the best you can get. If you're making people give you 142 hours of notice, or forcing them to schedule a showing with your agent and forcing your agent to be present as well, or if you only allow showings once per 8.5 days, or if your entire house looks like my 10 year-old's bedroom after a weekend of playing with Legos... all of those things will hurt you.
3. Buyer's agent commission offered (also called SoC - Selling Office Commssion.) Covered above.
4. Your price. If you're over-priced, you'll know it, because your home won't sell, period - but this is last on the list for a reason. Your price has to be justified, and if the market's not giving you your price, then check to make sure the above things are in order - only adjust your price once there's nothing else you can do to the first three things.
Last but not least, do keep in mind that markets differ wildly from area to area. I believe what I've said above holds true in most markets, if not all, however, I'd be doing you a disservice if I didn't say to verify my opinion with a local agent in your area who really knows their stuff. If nothing else, hopefully some of this helps you ask some good questions. Good luck.
46 Replies
Hi @Rob Lawrence, commission amounts absolutely make a difference, the specifics of which I'll hit in a second. The laws and normalities of different states vary a lot, but in my experience, certain principles are true across any market.
The vast majority of buyers purchase homes through agents. In my market, those agents are typically accustomed to earned 2.5%-3% of a property's purchase price for their work. There are agents who will work for less, and there are agents who will charge more. However, for decades, 2.5%-3% to each agent has been the typical and customary fee.
What this means is that if you're offering less than the typical commission amount for your area for a buyer's agent to bring their buyer to your property, you will always tend to get less of their attention. I'm not talking about the morality or ethics of any of it, I'm simply talking about human nature. If an agent has two similar houses to show to their buyer in an area where they normally receive 2.5% for their work, and one house is offering 1.5% commission, and the other is offering 2.5%, you can bet that that agent is going to be a whole lot more interested in showing their buyer the house offering the standard commission.
Now, your original post asked about the difference between 5% and 6% - I'll speak to that as an agent in Southern California. When I take a listing, I never ever offer less than 2.5% to a buyer's agent, because in my area, I know that will do nothing but hurt the attractiveness of my property to other agents, whom 99% of buyers are using - even if that means I end up making a lot less than the buyer's agent.
I suggest you research your area by asking someone you trust what the typical buyer's agent commission is in your area. That will give you your answer.
For what it's worth, selling a home is actually very easy to do, agents make it sound super complex in order to make themselves sound smarter, but it's a load of crap - navigating the escrow is the complex and risk-fraught part, selling the house is easy. The top things you should make sure are in order are the following:
1. Your pictures/remarks. Buyers typically only buy homes after seeing them, but they won't bother seeing them if your pictures and comments suck. Don't cheap out, hire a professional photographer.
2. "Showability." How easy is it for buyers to see your home, and is it clean and presentable once they get there? A vacant house with a lockbox is the best you can get. If you're making people give you 142 hours of notice, or forcing them to schedule a showing with your agent and forcing your agent to be present as well, or if you only allow showings once per 8.5 days, or if your entire house looks like my 10 year-old's bedroom after a weekend of playing with Legos... all of those things will hurt you.
3. Buyer's agent commission offered (also called SoC - Selling Office Commssion.) Covered above.
4. Your price. If you're over-priced, you'll know it, because your home won't sell, period - but this is last on the list for a reason. Your price has to be justified, and if the market's not giving you your price, then check to make sure the above things are in order - only adjust your price once there's nothing else you can do to the first three things.
Last but not least, do keep in mind that markets differ wildly from area to area. I believe what I've said above holds true in most markets, if not all, however, I'd be doing you a disservice if I didn't say to verify my opinion with a local agent in your area who really knows their stuff. If nothing else, hopefully some of this helps you ask some good questions. Good luck.
- Rental Property Investor · San Diego, CA · Member since 2016 · 306 posts · 205 votes9y
@Rob Lawrence much of what @Nick G. touches on is true. I NEVER pay out the buyer's agent less than 2.5% even if that means I take less of the commission. How much of that 5% is going to the buying agent and how much is going to your listing agent?
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes9y
If the houses you are competing against are all 3% and yours is 2.5%, your property will likely sit longer, unless it happens to be more desireable than the competition. If the competition is already the same at 2.5%, then it doesn't matter and your issue for not selling is something else.
District Invest Group545 Reviews - Investor · Fort Walton Beach, FL · Member since 2015 · 568 posts · 966 votes9y
@Rob Lawrence What does your listing agreement specify for listing agent vs selling agent / buyer's agent commission? In FL it is specified in our listing agreement. e.g., 2.5% to listing agent and 2.5% to selling agent / buyer's agent.
Like others in this thread have stated, you want to make sure the listing agent is offering the selling agent at least 2.5%. If they are taking 3% as listing agent and only offering 2% to selling agent then that's not good.
Most agents are accustomed to 2.5-3% like others said.
However, if you asked your realtor "hey, it's been 60 days, why don't we have an offer yet" and your realtor's ONLY feedback was the commission structure, that is a red flag to me. There are so many factors that go in and a good listing agent should have a good grasp of the situation - not to mention that they should have at least provided feedback from showings.
- Real Estate Agent · West Chester, PA · Member since 2017 · 270 posts · 97 votes9y
Hi Everyone,
Thanks @Arianne L. @Russell Brazil, @Ariel Smith and @Nick G.for all the feedback! The split is 2.5% and 2.5% currently. My debate was going to the 3%/3% split or possibly offering a limited time bonus to the buyers agent. "place an offer by 8/30 and $500 bonus ...." or something like that.
I do think the place is showing pretty well, you can see the listing here if you have any comments on how I can improve it : https://www.trulia.com/property/3273033531-10-Rodi...
I am very familiar with the comps in the area, and I am priced on the higher side, but not outside of reasonable. The place is in good shape overall I think. I actually did have a buyer give me an offer for full ask, but pulled out in attorney review two weeks later, with no reason given.
I don't know how I can see what other people in the area are offering as a commission percentage. This is probably the most critical piece of information. Would you have to have access the MLS for that?
Its been a bit tough since I don't have much wiggle room with this whole thing, and I am trying to save for a wedding, etc. Trying to move it fast while not having to write a check at closing.
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes9y
Pictures are crap. Professional photography should always be used.
Your agent can show you what the commissions are on other properties in the area.
District Invest Group545 Reviews @Arianne L. @Russell Brazil @Ariel Smith
Hey guys, really important note here: Those of you who posted after me appear to have real estate licenses, which may have turned this post, technically, into a discussion between licensees. In compliance with Sherman Act and anti-trust laws, absolutely zero discussion here should be had between us about our commissions, in any way whatsoever. I probably shouldn't have even mentioned my opinion about what I believe is typical or customary.
I think I can speak for all of us when I say that we all agree that you should consult a local agent in your area and defer to them - and to just try to talk to your agent about what they're offering to a buyer's agent, whatever that amount may be, because it will definitely have an effect.
- Investor · Fort Walton Beach, FL · Member since 2015 · 568 posts · 966 votes9y
@Rob Lawrence I don't think changing the commission structure will make much of a difference. Though I know some people who use the $500 bonus... I don't think it'll make that much of a difference either. Agents wouldn't get notified about a bonus in the MLS so they'll only see it if they were looking at the property already. It wouldn't bring much more activity.
Now, I don't know your market. But if I was listing your property, I would #1 have a Professional Photographer take photos. They show MUCH nicer. Buyers buy with their eyes online first. It should only cost $150-300. I personally stage all our properties (rent a sofa/love seat for 100/month at the furniture rental stores, buy blow up mattresses, put them on moving boxes and put mattress sets and pillows so they look like real beds). It costs us around $500 to do this for properties but it makes so much of a difference.
Here's a link to one of our properties closing in a couple weeks - pro photos and minimal staging
What is the average days on market in that area?
- Rental Property Investor · San Diego, CA · Member since 2016 · 306 posts · 205 votes9y
@Rob Lawrence I agree that you should take professional photos at minimum. I also recommend staging as well, but if that is not feasible then at least professional photography. The photos you have now make the rooms look dark and they look low quality.
- Real Estate Agent · West Chester, PA · Member since 2017 · 270 posts · 97 votes9y
@Arianne L., Thanks for the tip. Yes, the photos I have up, my agent did them. Had problems getting photos for a while because I had a tenant that was a pack rat, place was packed with stuff. Got these pics up a few weeks ago which were a big improvement. So I guess you think the ones I have have room for improvement?
Good to know about the bonus thing.
Very nice listing by the way! Some really great pics inside.
I don't know if I have the energy to stage the place right now, but both that and the new pics are good possible suggestions if things drag on. Or maybe I just decide to hold it and rent it out again.
https://www.zillow.com/sayreville-nj/home-values/
I can't find average time on market, but my area is on the cold side.
Rob
- Real Estate Investor · Macedon, NY · Member since 2016 · 251 posts · 290 votes9y
I also noticed in the listing it says "won't last" and that it can't be seen before 07/01. I'd probably get that date out of there.
I would say the buyer agent commission % doesn't matter as much as they used to. Especially in areas where it is a seller's market. If standard is 2.5%, and you drop it down to 2%, chances are it will have no effect especially due to the low inventory in hot markets. Obviously, don't drop it down to 1%. Buyers have more information at their fingertips now and can easily make their own decisions and see what's available in the market place. The ability to "steer" their clients away from a 2% to a 2.5% listing is something that can not be easily done without real justification.
Of course, in high inventory, buyers markets, the buyer agent commission % will make a huge difference.
- Investor · Philadelphia, PA · Member since 2010 · 739 posts · 372 votes9y
Sorry to be blunt but whoever picked that paint color scheme was nutso
- Real Estate Broker · Chicago, IL · Member since 2015 · 1k+ posts · 2k+ votes9y
@Rob Lawrence I agree with the others, the pictures are crap. Get a pro in to take them, its not that expensive, and your agent should have priced that in as part of her commission the 2 of you agreed to. Photos can be virtually staged as well (boxbrownie.com is a good option). Also, cut the grass, and pitch the grill, bench and hose. Remove those cables sprawled on the floor. Get a Matterport 3D walkthrough done as well to really get a feel for the space, its only like $0.10-$0.20/sqft. The photos that are there now make me feel very cramped because of the angle, I assume that angle was taken because its so small no other angle would work (which for a pro is not the case). When you upload those, reduce the price $5k to get it to pop on folk's radar.
3 vs 2.5 isn't going to make a world of difference. Its not the commission, its the value buyers see. If the pictures and description are garbage, buyers aren't going to be excited to see it no matter what your commission or bonus offered is. IE if I saw a listing @ 10%, I'd wonder what is wrong that the seller feels its necessary to burn 10% to tempt me to hard sell my client (which doesn't happen).
Also, on @Paul Bowers's point, I hate language like "It won't last" and past dates. Same thing with "motivated seller" and the like. Focus on the details that will intrigue a buyer enough to come experience the property in person. This is a $200k+ purchase, not a flea market Buy-One-Get-One find.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes9y
I am in the commercial space but did some residential way back when.... : )
Looking at the pics honestly it looks like you had a renter and then now want to sell the property but it is in RENT READY and not SELL READY condition.
The kitchen appliances and washer and dryer look ancient. Only 1 section of fence appears and not on both sides in the back yard so there is not total privacy between neighbors. Maybe the other side is fenced but you could not tell from the pics. It looks like not as it appears 2 access doors on the back for 2 different properties.
Have you checked the tax records for each property in the development to see investor to home owner ratios? You might be trying to sell to an owner occupant when the ideal buyer might be a buy and hold investor for a rental. Picture of a bedroom has a really old *** gold ceiling fan that is very dated. Fans at Home Depot or Lowe's are generally about 60 to 100 bucks plus if you know how to install yourself.
The bath tub appears to be a light yellow color which people do not think of as clean. You might want to get it re-coated white if you do not want to replace. The bathroom sink cabinet some of the drawers are flaking paint.
When looking at comps you have a middle unit with 2 common walls. For sold comps those are generally worth less money than the end units which share only one common wall. Make sure your broker or agent is compensating for this in pricing.
What you have into the property so far and personal circumstances has nothing to do with this property whatsoever. Buyers try to get the nicest property they can at the best price possible. The key question is will a few updates put the property in a condition that is closer to your asking price or will it not doing anything and only dropping the price will help it sell? Has your broker or agent given feedback from open houses or buyer showings for the good,bad, and ugly comments? Your broker or agent needs to talk to the buyer or the buyers broker/agent if represented and ask them point blank what is making them not write an offer on the property TODAY? Is it something fixable or something not? You do not want them being cordial and saying what you want to hear. You want to know what they really think. Don't take comments personally as sometimes the feedback can help make corrections to sell a property. If one buyer has an off the wall comment for feedback that is one think but if many buyers are saying the same thing you have a pattern for feedback and a general issue that need resolving. The issue can sometimes be overcome by updating things and sometimes the issue if it is something not fixable then someone will generally step in and buy the property but for a reduced price.
If you need to pay for updates but do not have much money sometimes Home Depot or Lowe's depending on your credit offer a same as cash zero interest deal for awhile. You then could possibly put update items on that card and then sell the property upgraded and make payments over time.
Good Luck. No legal advice given.
- Real Estate Professional · Dublin, OH · Member since 2013 · 251 posts · 165 votes9y
@Rob Lawrence unless youre in the multi millions, price sells a house not broker/agent commission. I've sold some crappy as-is property with only a couple hundred dollars gross commission because that was the going commission rate In the area.
Never pay more than than market is asking for.
- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes9y
Commissions CAN make a difference but there are other factors.
Ever see an eight sentence listing? What makes anyone interested if they don't know features.
Ever see poor or one single picture listing? Hire a professional. Pictures sell.
Ever see a listing that was VERY cluttered, etc? This drives away lookers.
Yes, agents DO look at commissions but these other factors can play a huge difference. As long as your listing is competitive with others in the market, that won't be an issue. 2.5% vs 3% may not matter. A house filled with junk, a poor description, and one picture of the house with the lawn one foot high WILL make a difference, but not the one you had hoped for. - Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes9y
Originally posted by @Rob Lawrence:
I am currently selling my house, and I have a 5% commission on it. My realtor says that maybe I am not getting as many people coming or an offer because of my commission percentage. In you experience, do you think it makes a difference?
Did your agent do a GREAT job or a ho-hum average job? If they did a poor listing, forget the commission and change agents.
- 9yMindy JensenPro MemberBiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
@Rob Lawrence , the first image is of the exterior, which is good, but then the next pic is a toilet. I would also suggest rearranging the order of the images, once you have better pics taken.
I agree with the poster above who said the appliances are old looking.
- Real Estate Agent · West Chester, PA · Member since 2017 · 270 posts · 97 votes9y
@Mindy Jensen, haha I can say the appliances look old because the oven and fridge are fairly old. The oven being off-white doesn't help when everything else is white.
- Real Estate Agent · West Chester, PA · Member since 2017 · 270 posts · 97 votes9y
Thanks everyone for all of the input. Clearly a lot I can do here to improve my chances of a sale. I am going to let things ride for two weeks, and see what happens. Common theme seems to be the pictures, which I have to say, I thought were pretty good from my perspective. I guess that is the good thing about asking for opinions, you never know your own blind spots.
Painting the place is probably what really needs to be done. One challenge I have is living two hours from the property.
When you guys paint, do you just go all white walls, or try to pick a trendy color?
- Real Estate Agent · New York, NY · Member since 2017 · 66 posts · 26 votes9y
It's just whatever is the going rate in your area -- do most listings do 5 or 6%? If there will be multiple agents pitching this listing, have STRONG REASONS why you're worth 6% if other agents can go down to 5% -- cite examples of what you would do to market the home, get it sold quickly, qualify buyers, negotiate top dollar, and provide them with the smartest advice on which offers to accept or turn down or counter and for how much and why; explain your skills to create great CMAs that will definitely bring in buyers -- UNFORTUNATELY, the pictures on your listing kill all of this in my opinion. Yes, get a stager for some basics -- and then do some virtual staging for some nice accoutrements that would be too expensive to rent. ALWAYS offer the buyer's broker at least what you are making if not MORE. In the end, it really is the SELLER'S decision -- you don't decide 5 or 6%; it is coming out of their pocket after all is said and done -- if the client is stuck on the number 5%, it's your job to explain that everyone else is offering 6% (if this is the case) and buyer's agents won't bring clients by or attend your broker's open house if you offer less than the competition so they won't know the product and won't bring in their clients. If it's a good client (multiple moves, good referals, high prices, they remain loyal and you work with their kids, etc), and they insist on 5%, take 2% and give 3% to buyer's broker if that's what buyer's broker is accustomed to in that area -- but double check this is OK with your manager b/c they are a good client. If the going rate is 5 in your area, then go with 5 UNLESS you feel that there is something bizarre about the property that you want to hide and the sellers need to sell quickly -- so you can offer an incentive for buyer's brokers to come quicker. In that case, I probably would ask the seller to spend 7% and take 3 to yourself 4 for the buyer's broker... or as you said, a gift card, a cash bonus, or something else... But you have to prove why you're worth 6 if they have multiple brokers pitching who will undercut you. In my firm, we have no marketing budget on any property and every property is put everywhere applicable and spread to thousands of sites, magazines, newspaper so we have a smaller split. Some companies make their employees pay out of pocket for marketing so they can undercut you at 5% b/c their split is higher. State in your pitch why your unlimited marketing budget warrants the extra percent and how it will be made up in final sales price.
- 9yMike CumbieBusiness MemberREALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
I will say in regards to @Eric C. s point
"The ability to "steer" their clients away from a 2% to a 2.5% listing is something that can not be easily done without real justification."
Personally I wouldn't steer clients away if it was the right place. However if an agent had the buyer under an exclusive agreement. Then the agent could and most likely would let them know that they are responsibile for the commission difference. An exclusive buyers agreement (At least in my area) says "I agree that a minimum commission of X% will be paid or I will make up the difference". So the conversation kind of goes:
Agent "I would be happy to setup this one here at 123 Main Street, but so you know they have a commission setup of 2.5% and we are running at a 3% so you would be responsibile for the other .5% at closing if you go with that one"
Buyer: "You know what, let's not even bother I do think we should go back and take another look at 789 Lake then"
Now I don't use exclusive buyers contracts but if there was a house that someone had a commisison to low for me to work with, I would let me buyer know they are welcome to go it alone and no hard feelings or make up the difference. In my experience most buyers have me go find another house.
Good Luck!
- Real Estate Agent · New York, NY · Member since 2017 · 66 posts · 26 votes9y
"Updated" "Remodeled' "Mint"??? This looks estate condition to me ... either total gut job or bulldoze to be honest
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes9y
Here is something to think about especially if the house listed is in the first time home buyer house price range.
Every real estate cycle we see ebbs and flows of new real estate agents getting licensed. When market is good everyone jumps in thinking anyone can do real estate. NAR the REALTOR association generally loves agent growth as they can sell more services from third party vendors as the go to item needed to be successful starting out.
The new agents generally the first year might do a few sales with current friends and family and then need to start running a business getting more leads and referrals before their business drys out. Many new agents have never ran a business before. Starting out most agents give a big chunk of commission to their brokerage (like 50% as an example). In the first year about 80% of new agents have left the business. Those that remain and survive another 5 years about 80% of those go away. So you have a revolving door of new agents that eek out some sales before leaving the business all together or going part time working another job.
With starter homes most of the agents tend to be newer that work the buyer side. So with only a few sales to get going in many cases they tend to look at every cent in commission they will make after the split with their brokerage.
People can say ethics etc.,etc. but let's look at real world. New agent wanting to maximize return is looking at that co-op. Established brokers and agents that are not starving for money today and in the business a long time it's easier to put clients first as they are not usually surviving on a deal to deal basis.
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