2 Percent of Nothing

I'm seeing more and more people come to websites like this to ask for advice from real estate agents. Some of them actually have their homes listed with discount brokers. Instead of addressing what might be a connection there, I'm interested in discussing what a slow market means for thrifty sellers.

In a buyer's market you've got a lot of inventory, prices are down and there aren't many buyers. Sellers need to realize that they can't command the high prices that a seller's market allows, since this isn't a seller's market. Ok, got me so far?

Now there's a lot of belt-tightening going on and and I don't blame sellers for wanting to save money wherever they can. Some may believe that paying an agent 6% is too much money so they choose to list with a flat fee broker. Great. I'm all for saving money. But there's more to selling a house than simply worrying about how much commission you're paying out. In fact, if you concentrate solely on commission, you're in danger of losing much more.

First, let's look at the commission itself. If an agent you just met is so willing to give up a portion of his/her commission just to get your business, how well do you think this agent is going to be at negotiating on your behalf? Do you think this person is going to be vested enough to work hard to structure the transaction in such a way as to put extra money in your pocket--Even if it's only a few thousand dollars? Will this person actually act in your best interest to the point of negotiating things you don't even know about, but which could benefit you -- will this person be interested only in getting an offer--ANY offer--signed and closed? I can't speak for anyone else, but my marketing is very expensive. I could never afford to be a discount agent because so much money goes into each and every listing I take.

Beyond the commission is the offer itself. Apparently this isn't as obvious as I thought, but what sellers (and buyers) need to know is that the way the transaction is structured can make a huge impact on the seller's net. I won't go into detail but suffice it to say this should probably be much more important to a seller than worrying about a commission.

There's probably a lot of flat fee sellers out there who are in for a very rude awakening. They're priced too high and they'll end up listing with an agent eventually, but only after their home has stagnated on the MLS for a few more months (probably causing them to sell at an even lower price than if they had simply priced it properly to begin with).

Keep in mind that buyer's agents are your best friend when you're trying to sell your house. You need to make nice-nice. You do this by allowing them to bring their clients through when they call you from 2 blocks away. You do this by leaving a keybox out so they don't have to make an appointment a week in advance to show your home to their buyer. You do this by not saying "Come back tomorrow, my baby's asleep/the house is messy/I'm tired/we have company/etc etc etc." Do you want to sell your house or not? Understand that buyer's agents sometimes don't have many opportunities to take their buyers out on tours. Buyers are busy. Sometimes they don't live here. So when I call you and ask to show your house and you say "no"--You've probably lost your one chance to sell to my buyer. But don't worry--we have plenty of other houses to look at.

But getting back to commission--Let's address what you're offering buyer's agents. Remember, these are your new best friends--They are the ones who bring buyers to your house! Looking through flat-fee listings (and many new developments) I see 2%, 2.5%, and the almost insulting 3/1.5%. (3% of the first $100k and 1.5% of the remainder). Let me state the obvious--This is a buyer's market. LOTS of inventory. NOT a lot of buyers. Ok--Got that? So if you have a house that arguably is one of MANY that buyers could choose from, would you really want to punish any agent who brings buyers to your property? If an agent knows there are 20 houses like yours that his client will like, and you're paying 2.5% and the others are paying 3, 3.5 or 4%, do you really think your home is going to be at the top of their must-see list? As a listing agent, I try to ALWAYS offer 3% or more, even on multi-million dollar listings. (It's true--Feel free to look up my listings on the MLS).

I guess the whole point of this post is to theorize that it's very easy to be penny smart and pound foolish. Saving 2% on commission is great--But if you're selling your home for 5% less to accomplish that--What have you saved?