You know you need an agent to sell your home but you hate the idea of paying huge commissions right? And if you were wondering if it would affect your sale by negotiating less commission then you need to read this. Don’t worry though. We’ve identified a solid option for every home seller to consider.
A Little Real Estate Commission History
In order to understand how real estate commissions affect the sale of your home you need to do a little due diligence and look into the history of real estate commissions and how it can affect your bottom line. Not just in how much you put out in commissions but how much your agent will (or will not) work for you under certain circumstances.
The Traditional (Usually around 6% method) Is Old School
My mother was a real estate agent back in the early 70’s and she recalls this was in fact the same model they used back then. She even recalls chatting it up with the old timers and they even acknowledge it is just the way it has been done forever. The big question that comes to my mind is “when commissions skyrocketed along with home prices, did the amount of work an agent has to do increase as well? If not then why did the commissions increase?”
Why based on a percentage?
As of this writing, no single person has given me a reasonable explanation as to why a percentage is used in calculating the amount of commission a home owner will pay an agent for selling their home. Loosely based on miscellaneous information, supposedly it was based on the idea that the more expensive the home, the more difficult it would be to sell. This makes some sense since the higher the price goes, the smaller the pool of buyers that could afford it. But…this was originated back in the day when not a lick of data was available to the home buyer. They had 100% reliance on the real estate agent to guide them to the right home. It’s a
little lot different now.
The argument for 6%
So there’s a couple of angles I’ve been given as to why 6% is kind of the standard. One of the most clever ones is the 6 pennies presentation. An agent lays out 6 pennies to represent the 6% they are asking you to pay. They immediately remove 3 pennies and inform you that these 3 pennies are going to the buyers agent and their brokerage and they themselves will never see these pennies again. That only leaves 3 pennies. 1 of the remaining pennies goes to the brokerage for overhead (office space, equipment, staff etc). Of the two remaining pennies 1 goes to Uncle Sam in the form of Taxes. Then there’s a sad little agent sitting there with just one little worn penny to put into their pocket. Do you feel sorry for the poor little agent? LOL! I didn’t think so.
All you have to do is turn those pennies into the actual dollars you’ll pay and it will probably raise your blood pressure a bit. IMPORTANT>However in many interviews with agents, very few agents admit that they spend more marketing dollars and time and effort on selling that million dollar home vs. the $400,000 condo. So it just doesn’t compute for me.
Why asking for less can be bad
OK, so toss out a couple of those pennies (or percentage points). The agent will still make good money right?
Well, yes they will but consider the training they’ve received. Not just in their office but on the regional, state and national levels. Agents industry wide have been brainwashed (not trying to be mean) into believing that if they don’t get 6% or more when they list a home, then they are not getting what they are worth.
I’ve heard these conversations first hand. Let’s say you negotiate down 4.5% On a $600,000 home that’s still $27,000. Um, that’s like the cost of a car right? You think they’d be OK with it. However when an agent takes a lower commission they may feel defeated or that they’ve caved in on their convictions and might handle a few things differently.
- Offer less compensation to the buyers agent by not splitting it evenly.
(This WILL reduce the number of other agents that will show your home which is real bad).
- Take the listing anyway, put a sign in the yard and when someone calls to see it, talk them into seeing the house down the street that pays a full commission.
- Just pop it in the MLS and let it sit and hope another agent brings a buyer so they don’t have to do a lot of work.
Now I 100% guarantee you that no agent will ever personally admit to using these tactics and in all fairness there are many good agents who would never even consider doing these things but how do you know? Some agents may subconsciously employ these tactics. Why? It’s simple. They’re human too and they have families they need to take care of. The priority almost always goes to wherever the biggest paycheck is. Makes sense right?
Just pay or don’t play
So in the end, if an agent is asking for a certain fee, by not accepting that fee, it could result in fewer showings, less motivation and lowered profits for you. There has to be another way.
The Discount Agent
One agent told me “I’ve never met a home seller that said ‘I’m so glad I paid 6%’ not ever!” Thus is born the discount agent.
Real estate is very very competitive. In Orange County alone there are approximately 25,000+ active agents across the 3 real estate boards that cover the county. However according to the local MLS there were only 2,389 Single Family Homes and Condos that Sold during the month of December 2016. So compare numbers and you’ll quickly see how many agents never got a paycheck that month. This is incredibly common. Needless to say they’re all fighting for your piece of the pie.
Discounts sound like a viable option
From a logical home seller standpoint, this looks like a better option. The agent has already agreed to take less even before negotiating a fee so their feelings shouldn’t get hurt. They asked for a lower fee and that’s what they got. Everyone is happy right?
You get what you pay for?
When we spoke to agents who were willing to take a lower rate than their competition a few things became very clear. With a couple of exceptions, these agents were not doing a lot of business.
As everyone knows from Walmart and Amazon that if you’re going to give discount rates, you had better make it up by selling lots and LOTS of stuff.
In most cases these agents were doing a lot less business which then made me realize that they probably started promoting their “discount service” in hopes of driving up leads. The only problem is that in order to advertise oneself you have to have revenue. In order to advertise your home for sale, they have to have revenue. If they weren’t doing hardly any business before, and now they’re taking a discount, they are probably having a hard time paying their own bills. So how can they effectively promote a new listing. It just didn’t add up.
Still on a sliding scale
Some agents who offer discount listing rates have managed to maintain a fairly consistent business and appear to offer a high level of service to their clients. But the one thing that keeps poking me like a thorn in my side is the question of why they are offering it on a sliding scale? They still base their fee on a percentage of the home’s sale price. Yet the amount of work on each home is generally the same. Right? The idea of a discount agent offering a sliding scale still doesn’t sit right with me.
The Do It Yourself Service
Ah yes. The For Sale By Owner. After interviewing over 100 home sellers, when asked “If you could sell your home on your own without paying commissions would you?” all but 2 sellers answered a resounding YES. Yet they ALL still listed with an agent.
The apparent problem is that they thought if they just popped a sign in the yard a buyer would drive by, see it and voila’ SOLD! (About 13% of these actually already tried.) There’s a national statistic that says that roughly only 1.6% of all homeowners ever end up selling their home on their own. Don’t feel bad though. It’s not your fault, it’s just the way the system is designed. There is however something to be said about the resources an agent has at their disposal that the general public doesn’t. So to address this, along comes the Do It Yourself Service.
Starts Out As a Flat Fee
While it was kind of difficult to find these companies locally right now, it was something that was prominent in the past. Companies like HelpUSell and Assist2Sell are based on a model where they charge a flat fee (usually between $2,295 and $4,995) and then let you do the work.
What you would usually get for that was a basic MLS Listing and a generic for sale sign on a metal stake. The idea was that if it was in the MLS, the other agents would see it, but you as the owner had to do your own open houses, marketing, showings, scheduling etc. For some people that’s perfectly fine. For others it’s a nightmare and that’s when these companies tug the line a little harder to lock in the hook.
Wait it’s still 6%?
For those home sellers who needed more help with additional services, these companies offered an a-la-carte type of service. For example if the seller wanted color flyers, a lockbox, open house signs, agent hosted open houses, contract review, contract negotiation, schedule showings, actual showings and on and on there were set fees.
Keep in mind that if these services collected a flat fee (usually up front) for just dropping a home in the MLS, they would be perfectly happy with that. Lots of money for very little work and it didn’t matter in the end if it ever sold. They’ve already been paid. But…
Having a friend who owned a HelpUSell back in the day I was able to access the secret a-la-carte price list. I remember the day I was sitting there reading the price list and I was adding things up in my head. My jaw hit the floor. As I added in everything a full service agent normally would do, IT STILL CAME UP TO 6%! It then hit me.
The allure of selling your home yourself with a little assistance and a flat fee was only a hook. They hooked you with the low flat fee and then when your home didn’t suddenly jump into the Sold Status they would reel you in with more and more services. The really really bad part of this is that now you’ve blown your peak selling window.
Uh Oh…It’s too late
Every real estate agent (should) knows and most home sellers don’t have a clue about is the initial 2 week listing window. Very simply put, if a home is not sold in today’s market within the first 2 weeks, it’s very likely that it’s now going to sit a while and require considerable price drops before it will find a buyer.
Here’s why. Let’s say there’s a bunch of buyers out there looking for a home right now that matches your homes criteria. If your home is initially exposed to the marketplace in a soft launch or what I refer to as a drizzle (which is what services like this do), then only a few of those buyers will notice it when it first goes available.
So to try to ramp it up after the fact does more harm than good. Those buyers may notice your home a month or more down the road but then they question why it’s been sitting on the market so long. In their mind there’s obviously something wrong with it or it’s overpriced. If not, it would have been sold already. So they move on to the newer homes being listed. When you list your home, it needs to launch with a bang into the marketplace, not drizzle.
A New Fresh Cost Effective Approach
I call this ‘new’ only because I’ve found only one agent in all of Orange County who’s actually doing this. I have found several across the country and in every case home seller’s seem to love it. I have run into several agents who claim to do something similar but after peeling away the onion, you see there’s lots of loopholes and catches.
But with this agent I haven’t found any of the other loopholes or tricks. It is just straight up what it is.
One Fee Fits All
To list your home with this agent, it’s so rediculously simple. $4,000. That’s it. The agent Anthony Nitz from 4000ListingFee.com claims that he’ll list any home, in any location (in OC and surrounding areas), in any condition, at any price for only $4,000. I know right?
I hit him with all the questions like, what if it’s gated or multi-millions or downtown Santa Ana or Coto de Caza or a fixer upper or a probate or a short sale or a condo or has dogs or …fill in the blank. His answer…$4,000. I asked him where the sliding scale was. Nope, only $4,000. I asked him what if it’s a divorce, court sale or tear down? Same answer.
Well for $4,000 it must not be the best marketing of my home right? After looking at the list of services he provides and the listings of properties he recently sold, it was clear that the marketing of the home was top notch.
I asked him how it is that he could possibly be listing homes for $4,000 when other agents are taking up to 10 times as much for the higher priced homes? Nitz said, “It’s all about volume”.
It’s About Volume
Nitz explains that it’s very simple. “I’d rather have 10 listings where I make $4,000 each than to have one or two where I make $15,000 each. It’s kind of like Walmart or Amazon who are among the biggest companies in the world. They charge you $40 bucks for that gadget regardless of how much money you make. As a result they sell billions where the other companies who charge $120 for the same gadget trail way behind in sales.” The end result, Nitz’ volume seems to be increasing every day.
A Modern Approach
Despite Nitz’ casual demeanor it is clear he is all about the business of selling homes. Some of the things he shared with regard to the technology of selling a home while combining with traditional old school methods were mind blowing. But I think what was more important was how he implemented systems into his business. He says’s it’s kind of like a catch 22. If he wasn’t doing volume, he couldn’t effectively run his business but if he wasn’t using strict systems, he couldn’t do the volume. He also claims it’s not fair to sellers who hire agents who are doing low or no volume because there’s no way they can maintain their systems in between each new listing.
Nitz went on to explain some incredible statistics (from several sources) that say that the average agent across the United States only closes between 2 and 5 transactions per year. This may be even less in OC due to the sheer number of agents. So he contends that there’s no way an agent can keep their tools sharp if they’re only selling 3 homes or even 5 homes per year. Every time they take a new listing they have to go back and ‘remember’ what steps they had to take or what new technology or methods have popped up. It’s not too likely that any seller wants someone re-learning their business on their dime. Likewise, does the agent have the money to pre-fund the marketing of the home while it’s listed or are they waiting for your sale to close so they have money for the next one? He says that’s not fair.
Nitz says, “Just charge a fee that is fair for everyone involved and continue the level of service already offered and by sheer volume, it makes up the difference”.
Take Your Time And Do Some Research
In the end of the day, in our current economy and real estate market, Nitz’ 4000ListingFee.com program just seems to make sense to me. But remember, this is your biggest asset you’ll probably ever own. Don’t take a chance that you’ll hire the wrong agent. Do some due diligence to protect yourself.
Happy Home selling