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
- Real Estate Agent · Alexandria, VA · Member since 2014 · 184 posts · 78 votes9y
@Rob Lawrence, In the DC Metro, Most listings are offering 2.5%-3% to the buyer's agent. I have noticed that listings below 2.5% tend to sit. Its weird, because even in the DC Metro Area, you have more listings offering 3% commission in VA and 2.5% in the district. Agents shouldn't look at the commission being offered when showing properties due to ethical reasons, however thats an impossibility, because human nature is driven by incentives. There is a fine balance between incentivizing people to act and budgeting on your end. Most people don't consider the time and cost on the agent's side. Your listing is in the low 200s, I would think that 2.5%-3% would be a huge difference. When you are looking at $500K plus homes, this difference would be less drastic to the agent's bottom line. Its hard to quantify, because you could be losing more money in decreasing demand by disincentivizing agents to show your property. It is impossible to calculate this number, because you will never know who didn't show your property.
Good luck!
- 9yJames MaraditsPro MemberReal Estate Broker · Cleveland, OH · Member since 2015 · 239 posts · 224 votes
Originally posted by @Rob Lawrence:
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?
Do the pictures immediately, don't let it ride for two weeks. Keep in mind the majority of buyers are flipping through dozens of houses on all the various websites and apps every day. If your listing is two months old and has bad pictures that they have already seen, they won't give it a second look. Spend $150 and get some good pictures taken and do a minor price reduction to revive it.
A nice neutral gray or beige throughout the place would brighten it up and make it look cleaner, but that could probably wait. I would start by cleaning up the yard, getting rid of those cords, straighten up the window treatments, replace the antique looking ceiling fan, and cleaning the dirty carpet. The wood floors downstairs look nice, but picture 12 with the paneled looking walls, old ceiling fan, and dirty white carpet is a huge turn off.
- 9yJames MaraditsPro MemberReal Estate Broker · Cleveland, OH · Member since 2015 · 239 posts · 224 votes
Side notes:
This kind of speaks to a "you get what you pay for" note. I'm fairly certain if you would have hired an agent that would charge a higher commission rate that they would have seen that the listing pictures and description were of a higher quality.
Any ethical buyers agent is going to work on the best interest of their client regardless of the commission split. I think the problem here is not the commission but the listing and presentation. Have you gotten any feedback from agents who have shown the property?
- Investor · Towson, MD · Member since 2014 · 472 posts · 257 votes9y
I'm with @James Maradits - expecting top level, professional, world-class service for rock bottom prices is always a recipe for disappointment and frustration.
And while any service provider should seek to find the best for their client, the real world implication is that we have only so many hours in the day. Client A is looking for a $450,000 SFH while Client B is looking for a $50,000 inner city property to fix and flip. If you were the agent, where would you spend your time? It's nieve to suggest all clients should be treated equally due to ethical reasons. Clients are not equal.
What we're really talking about is Client A is looking at a $450,000 SHF and the agent chooses to "suggest" House 1 with 3% commission vs. House 2 with 2.5% commission. That is highly unethical and probably illegal; however, internet sites such as Zillow making all MLS properties readily available to consumers, the "knowledge paradox" has all but been eliminated, so my hunch is that this probably occurs less than we all suspect.
- 9yMike CumbieBusiness MemberREALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
"What we're really talking about is Client A is looking at a $450,000 SHF and the agent chooses to "suggest" House 1 with 3% commission vs. House 2 with 2.5% commission. That is highly unethical and probably illegal"
It is really: Here is house 1 and House 2. Now keep in mind if you decide on House 2 we have agreed on a commission of 3% and they are only paying 2.5%. So if we want to go with that one you will need to bring a check for $2,250 to closing. If you go with house 1 then it is all covered and we can go from there.
Nothing unethical about being straight and to the point with your clients. I have a fee that I charge for my services. In many cases the seller picks up those costs. In some they do not, if they do not then my client is responsibile for the difference if they want to purchase that asset. Many people feel that I have to work for whatever is offered and that is not the case. The only question is who pays what portion of that fee. Now if a client decides they don't want to bring an additional $2,250 to closing and they don't want to see the house than so be it.
Of course everything can be negotiated.
- Investor · Towson, MD · Member since 2014 · 472 posts · 257 votes9y
@Mike Cumbie - clients must pay the difference? See, you learn something new every day. Thank you for explaining that to me.
- Real Estate Agent · West Chester, PA · Member since 2017 · 270 posts · 97 votes9y
@James Maradits, people don't seem to be giving any feedback.
- 9yMike CumbieBusiness MemberREALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
Yes if you have an exclusive buyers representation contract with them then you normally outline commission rates there. At the very least if I did not have one signed, then on a case by case basis i would set it up based on the amount of time I have dedicated to this client, sale price, complexity of the deal, potential for future business etc. Just for the properties that do not pay a competing split that fits in my compensation model.
Would I "eat the cost" most of the time? Yes, but it is a business decision on my side before I do.
- Hi Robert, It does! All other factors being equal, buyer's agents will tend to show higher commission listings more often. It's worth the 1%. High days on market will signal to buyers that there could be problems with the property, leading to less and lower offers.
- Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes9y
@Rob Lawrence I'm not a real estate agent so I don't know how the commission splits impact an agent proactively showing you a deal. I know with my agent she'll sometimes send me listings to look at or off-market deals but if there's something out there on MLS I'll poke around and have her go see it on my behalf if I like it. I'd used her before so I don't think she cares as much if she's getting 2.5% or 3%. Maybe she does, I could be wrong, but it's yet to impact my experience have her preview properties, making offers, or working with me. That said, I'm a whopping sample size of one.
I will second everyone else's thoughts that the description and pictures likely doing your property a disservice. To be honest, it looks like a vacant apartment that didn't get spruced up at turnover. And that's the a huge issue. To my eyes: the carpet looks splotchy, only some of the walls like they have a fresh coat of paint, etc. You don't even that those cool little vacuum tracks in the carpet that makes it appear to have been freshly cleaned. For what it's worth, I'd also just replace those ceiling fans. They probably aren't too expensive to replace and would look nicer.
That said, my mean-spirited comments about the pictures are based on you saying you're at the higher-end of the market. If you're at the higher-end then your pictures better show *why* you're at the higher end. If they don't then me (as a non-agent) is just going to skip past your listing. If I do like it I'll just "Favorite" it on Trulia/Zillow/etc. and look again if the price drops.
- Real Estate Agent · West Chester, PA · Member since 2017 · 270 posts · 97 votes9y
@Andrew Johnson, It is in fact a rental that I cleared out and am now selling. Though I did spend some time fixing a lot of things, I think the paint is probably the remaining issue. The place is nice, it is in more of a blue collar area I guess you could say. I shampooed the carpets, but I think that was after the new pictures.
Probably will replace the very old ceiling fan. I remodeled this entire place, but I was a first time home buyer, so learned a lot through the process. The place has been quite a learning experience overall.
I will let it simmer for a while, then take action. Have been getting a fair number of showings.
- Real Estate Agent · West Chester, PA · Member since 2017 · 270 posts · 97 votes9y
@James Maradits, thanks for the suggestions. I don't think I got a discount agent or anything like that. She helped me buy the place, and has 25 years experience, and is ranked well, etc. I just said that was the commission I wanted to go with. She owns her own brokerage, etc.
I think I am compiling a list of stuff to do here, but you gotta do what it takes to make things happen. I might make some of the fixes before redoing the photos, then agree, small price reduction to get attention with the new photos and fixes.
- 9yJean BolgerPro MemberAurora, CO · Member since 2012 · 2k+ posts · 1k+ votes
Do not, I repeat, do not, have the first interior picture your buyers see be a toilet.
They are going to assume the house contains a toilet.
They don't need to see a closeup of the second toilet either. The listing makes clear there are 2.5 baths.
also, I'd remove the wiring lying on the floors (or at least photoshop it out).
And don't forget to remove the unexploded ordnance from the backyard
I'm just poking fun now, but I agree, those are terrible photos. I get professional photos shot by Virtuance, they will do 10 fantastic photos and make them available in formats for web and print marketing for $99. They may not be in your area, but there will be some equivalent service. BTW the cost of that, and usually the cost of staging too, if we're using it, comes out of my commission.
It's not the commission that's making this not sell, and your agent is kind of nuts to suggest that. - Investor · Canyon Lake, CA · Member since 2015 · 92 posts · 34 votes9y
A better commission split for you would have been 2% to the listing agent and 3% for the selling agent. The most difficult part of a listing agent's work is obtaining your listing.
Originally posted by @Paul Chapey:
A better commission split for you would have been 2% to the listing agent and 3% for the selling agent. The most difficult part of a listing agent's work is obtaining your listing.
This is terrible advice. Not only would you then be disincentivizing and devaluing the person whom is working hard on your behalf, but it's also just completely untrue. Navigating the escrow process, particularly in California, is by far and away the most complex and challenging part of selling a property. It's not that escrow isn't a straightforward process, albeit with a fairly high number of moving pieces and frequent complications - the complexity lies in understanding what the best way to deal with an issue is when it arises without exposing your client to contractual or financial risk. That is much easier said than done in California, and ignorance of just how complex the escrow process can be - and how skilled an agent needs to actually be - is why the CA court system is so completely chock-full of real estate disputes.
- Real Estate Agent · West Chester, PA · Member since 2017 · 270 posts · 97 votes9y
Well, just thought I would update everyone, did end up changing the picture order and changing the description. Think I will do a slight price decrease to then kick this in to people's inboxes. When originally posted, the pictures were really bad, much worse than these ones because of the tenant still being in there.
Thanks for all the blunt criticism.
- 9yJean BolgerPro MemberAurora, CO · Member since 2012 · 2k+ posts · 1k+ votes
Looking forward to hearing how it turns out. Marketing is tricky! You don't want to promise what you haven't got, but you sure as heck don't want to play down what you have
- Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ 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?
You have received many, many opinions in this thread, and opinions on both sides which really doesn't help your decision here. That's the one problem with opinions, everybody has one and they are not always correct. Some come with bias, some come with less experience, and even some with a complete lack of knowledge on the subject.
That said, getting back to your topic, in today's market, the difference between a 5% listing and a 6% listing is NOT the reason you are not getting offers or as much activity. The fact that your agent with 25 years experience stated that tells me thus agent has a few things to still learn that should have been learned a long time ago. I would say it is much more factbthan opinion that your listing photos leave little to be desired and are proper number 1. Problem 2 is the lack of detail in your preparation for the listing. The old ceiling fan, the cables wound on the floor (very simple to cut them off at the wall), the old carpet, the old paint, etc. I have flipped many many homes and attention to the small details is mperative. The fact is, homes with all these "little things" handled prior to photos and prior to listing is of vital importance to your success.
Now, here is an opinion from me coming from a lot of experience, albeit I am not familiar with your specific market, but I feel may be your best choice. Put the listing on hold, spend a bit of capital on putting in new paint, new ceiling fan, improve landscaping, removing the cable wires on the floor, replace the carpet and then take new professional photos and re-list. You do not need to drop the price at that point, the money spent and the value add you do should do the trick and sell it much quicker.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes9y
Robert has your listing broker ever told you about ( chasing the pricing curve)?
You need your listing broker to give you an updated report on what the market is doing. Are values going up, staying flat, going down and by how much percentage? Are days on the market going up or down? What are absorption for inventory levels doing?
Sometimes when sellers first list they get some showings but are overpriced for the market or condition of the property ( could be both). They then decide to reduce after 2 weeks by 5,000. Problem is another listing came on the market and they went in 10,000 cheaper on price than you so you are still at the top price of available inventory. When a property is priced at the top it better be in almost perfect condition.
What happens is systematic price reductions chasing a down market and having a big loss rather than pricing middle of the existing market to get an offer to negotiate and sell.
Active listings matter but recent closed sales and concessions paid by seller is the gold data to look at.
If you are getting showings but no offers you need to know why? Has your broker given you a report the last 7 days showing 15 appointments scheduled, 10 showings, 6 buyers feedback information of X,Y,Z.
You really need that feedback it is critical.
- Real Estate Agent · West Chester, PA · Member since 2017 · 270 posts · 97 votes9y
Thanks everyone, I did receive an offer this weekend, so the contract in is attorney review. But I think the commission question is interesting. I wonder if anyone has ever conducted a study on this?
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