LET'S TALK COMMISSIONS
Commission is one of the most misunderstood concepts in the Real Estate Industry from a consumer standpoint. So let's take a minute and dive into some explanations.
SELLING MY HOUSE: COMMISSIONS
When selling your home, the commissions paid can range in values, I have seen as high as 8% in our mid to upper end market, and with ultra luxe properties, agents have seen up to a 9% commission.
This percentage does not go directly to your agent for selling your house. It follows a series of breakdowns: For this example, let's take a 6% commission (For example purposes, the following numbers have been fabricated and don't apply to all real estate professionals, speak directly with me as your listing agent, or the agent representing you for information on their individual situation)
- The commission is split between the listing agent (Realtor listing your house) and the Buyer's agent (Realtor who brings a buyer to the transaction). Let's say it's split 3%, and 3%.
- This 3% for the listing agent often is for the extensive marketing, preparation, professional photography, staging consult and other activities that I, as the listing agent for example, engage in to get your home sold for the highest amount, in the least amount of time, with the least amount of hassle.* This is personal to my business. Not all Real Estate Agents provide the activities mentioned in point #2.*
- The Buyer's agent therefore is paid with the remaining 3% of the original 6% commission for bringing a qualified, ready, and willing buyer.
- On both sides, the Realtors typically have a 'split' with their brokerage where the brokerage takes a percentage of the agents' commission to be part of that brokerage. For example, 60% to the agent 40% to the brokerage. So the Agent in this scenario eventually ends up with 60% of the 3% commission before taxes and expenses paid out to sell your home. NOT the 6% on the listing agreement!
- Some Agents also have coaches in the business, who also have a 'split' with the agent, further reducing the agent's eventual commission.
SELLING MY HOUSE: "BUT XYZ REALTOR SAID THEY'D DO IT FOR LESS"
WOW, if any agent is willing to give up their own value so easily, what would they do when placed with the responsibility of representing your biggest asset? That's pretty scary.
Questions to ask a Real Estate Agent if they are readily willing to come down on their commission, or have a low commission compared to others you may have interviewed:
1. "Who's money are you giving away? Your portion of the commission, or the Buyer Agents'?"
If they're lowering the commission, ask what side of the commission they truly are affecting. If they reduce the buyer agents' commission, it is likely those agents won't show your home to potential buyers because of a sub-standard rate for their time, energy, and expertise. This way, your home is losing valuable attention.
2. "So what are you sacrificing to take a lower commission?"
It is likely something will fall in quality with a lowered commission. Will it be the Staging? Photography? Time they put in? Energy they put in? Effort they put forth? Marketing they create? What is lacking might lower your homes perceived value in the marketplace and ultimately not sell your home. Is it worth a few percentage decimals or points to sacrifice getting your home the most exposure and possibly multiple offers in our current market if priced appropriately? If the agent doesn't value their own ability - Should you?
3. "What Experience do you have with Negotiations?"
Quite possibly the biggest indicator if an agent has the knowledge and capability to represent you best. And if an answer from interviewing agents is "well, my cousin bought a house once and I told him to pay over list price 'cuz that's what everyone told me people did now", CALL ME!
BUYING MY HOUSE: COMMISSIONS
When buying your beautiful new home, or investment property, the Seller of the home being purchased typically pays for the commissions to your agent. Often, the commission paid by the buyer of a home is a brokerage commission that does not go to the agent, but to their brokerage to maintain its ability to keep running.
- The seller of a property will often pay the percentage commission that covers agents on both sides of the transaction (Buying agent and Listing Agent). Brokerage commission is separate, and is covered by both the buyer and the seller.
- There is often a smaller brokerage commission paid on both sides of the transaction which varies across the industry greatly. (Once you meet and work with me, all the information you need and want to know is available to you along with other great resources).
- Commission is often split many times before the agent is able to take home a penny!
- It is by far and away best to find a Realtor who will work hard for you no matter what. You want a bulldog negotiator and an excellent resource for you to utilize during our partnership when we decide to work together.
- QUESTION A LOWER COMMISSION, WHAT ARE THEY SACRIFICING?
- A high level of education about the industry is required to get a license and constant continuing education to practice Real Estate in the State of Minnesota. Rest assured I am a true professional, and will do whatever it takes to help you achieve your goals.
Call me today, 651-968-9706
*All numbers utilized in the commission calculation example are not an accurate representation of the commission or circumstance I myself, or my brokerage, engage in as a Realtor/Brokerage.