A few days ago I received an e-mail from a reader who asked if real estate listing agents would reduce their customary sales commission rate for expensive homes. A $1 million house sale, he reasoned, doesn’t include much more work for the listing agent than selling a less expensive home.
My reply noted some successful realty agents would reduce their sales commissions on expensive homes. But the big drawback of reducing the commission rate, I said, is many local multiple listing service (MLS) buyer agent members will show a home with a low commission rate last to their prospective buyers.
According to the respected “Real Trends” Web site, the national home sales commission rate is now about 5.1 percent. However, this survey was taken during the recent home sale boom during which virtually any realistically priced home sold easily. Today, with a glut of new home listings in most communities, the situation is rapidly changing.
During a recent Midwest trip, I met with a successful real estate sales agent friend. As I usually do, I asked her, “How’s the home sales market?”
She informed me she has too many listings and not enough buyers. “So I had to increase my sales commission rate,” she said, shocking me.
By that, she meant she now encourages her sellers to offer 7 percent sales commissions rather than the 6 percent that’s customary in her area The result is, she reports, buyer’s agents show her listings first because of the higher commission.
“When I really get desperate to sell a listing before it expires,” she says, she includes a trip to Hawaii for two to the agent who sells the home.
Except in a very “hot market” where there is a shortage of home sale listings, most home sellers don’t understand the drawbacks of getting their listing agent to reduce the sales commission.
Yes, there are a few successful “discount brokers” who offer reduced sales commissions. But the problem for sellers listing with discount brokers is these lower sales commissions don’t encourage cooperation from buyer’s agents who are often reluctant to show low commission listings unless there is nothing else to show to their buyers.
Most home sellers don’t fully understand how home-sale listing commissions are split. They think real estate agents are grossly overpaid for little work, especially if the home sells quickly within a few days because it was realistically listed at its market value.
In a typical home sale, four parties split the commission. They are the listing broker, the listing sales agent who works for that broker, the selling broker and the “buyer’s agent” who works for the selling broker.
Although each situation is different, depending on the listing terms, each of the four parties will usually receive 25 percent of the gross commission. For example, suppose a condo sells for $100,000 with a 6 percent sales commission of $6,000. That commission is usually split 50-50 between the listing brokerage and the selling brokerage. However, this split might be 4 percent to the listing agent and 2 percent to the selling agent, or vice versa, depending on local market conditions.
Presuming a 50-50 split, the listing brokerage receives $3,000 and the selling brokerage earns $3,000. Of those amounts, the brokerage then splits its share with the listing or selling agent. The lowest split is half to the listing or selling agent, but often higher. That means the listing or selling agent earns at least $1,500 in this example.
Most home sellers (and buyers) don’t understand their agent might take home as little as 1.5 percent of a typical 6 percent gross sales commission.
Based on my 39 years as a real estate broker, there are only two times a home seller should consider negotiating a reduced sales commission from the customary local “going rate.”
The first circumstance occurs when the home’s market value is far above typical home sale prices in the community. To illustrate, if you are selling a $1 million house in a town where the average home sells for $300,000, the successful agents you interview about listing your home for sale should offer a reduced sales commission without you even asking.
In other words, the higher the home sale market value, the more negotiable the sales commission becomes.
The second circumstance occurs after you interview several agents and list with the best agent at the asking price suggested by that agent. However, after exposure to the local home sales market at least 30 days, if that agent produces a purchase offer substantially below the recommended asking price, that is the time to discuss a “commission reduction” if you accept the buyer’s offer.
