Why a Lower Commission Could Net You Less Money, Not More
Does the real estate commission offer when selling a home matter? You bet it does!
Unfortunately, some sellers believe a lower real estate commission will lead to more money in their pocket.
On most occasions, nothing could be further from the truth. Low-commission Realtors can be enticing, but it’s often not in your best interests.
The commission on real estate offered when selling a home can directly impact your success.
With an increasing amount of discount brokers representing sellers in today’s real estate market, a practice known as “sell-to-the-commission” has been springing up.
When these discount brokers guarantee a lower cost for selling the house, it results in lower commissions for agents, sometimes so low that Realtors will purposefully avoid showing the properties to their clients.
Both buyers and sellers can get confused and frustrated, which is never a recipe for good relations between Realtors and their clients.
More buyers and sellers should understand the importance of a fair commission, especially if they want to enjoy a timely and productive real estate transaction.
What to Know About Lower Real Estate Commission
By the time you are done reading, I am going to answer these questions for you:
- Do low-commission Realtors save me money?
- Does the real estate commission split between agents matter?
- Will a lower commission make my home harder to sell?
- Will I sell my house for less money with a lower commission?
- Will offering a lower commission hurt my home sale?
The question of why a real estate commission matters should become crystal clear for you!
What Are Low Commission Realtors?
A low-commission real estate agent is a broker or Realtor who charges fees lower than the expected industry standard for the local area.
For example, if most real estate brokerages charge 5% and another does 4%, they would be considered a lower-commission real estate agent.
There are much fewer lower-commission real estate agents in most areas. Many potential home sellers assume that a low-commission Realtor will save them money.
What Are Flat Fee Real Estate Brokers?
A flat-fee real estate broker does not charge a traditional commission rate. Instead, they charge a flat fee to put your home into the multiple listing service (MLS).
Flat-fee real estate brokers do not provide the same services as a typical real estate firm. All you are getting is the benefit of having your home placed in MLS. You forgo all of the things a Realtor does to service their clients.
A flat-fee broker does not provide any of the standard services of a real estate agent.
A flat-fee brokerage is considered a low-commission Realtor. If you’re considering using one, you can head to Google and search for flat fee real estate brokers near me.
Understanding The Real Estate Commission Split
In the average home sale, a certain percentage goes towards a Realtor’s commission. If there is a commission of 5%, this amount will usually be split equally between the buyer’s agent and the seller’s agent.
Although the split can vary depending on the people involved and the deal that is decided upon, you can generally expect the division to be equitable.
A fair split would look like 2.5% to the buyer’s agent and 2.5% to the seller’s agent. But with discount brokers, the division is not always as fair as it should be.
With a discount broker, the seller is told they will have to pay a lower fee or commission because the discount broker offers a great deal.
The buyer’s agent is often shorted on the real estate commission split. In the scenario outlined above, the split is 50/50.
With a discount broker, it may look more like 2.5% to the seller’s agent and only 2% to the buyer’s agent.
Discounted commissions don’t necessarily have to come solely from discount brokerage companies. Any agent working for any company can set a commission structure less than what the market is accustomed to seeing, whatever that may be.
I say whatever that may be because commissions are never fixed. How much real estate agents make can vary tremendously. Commissions are always negotiable, but that does not mean it is prudent to discount the compensation you offer to Realtors.
Let’s take an in-depth look at why a lower real estate commission can be detrimental when selling a home. The commission split matters significantly when selling a house.
The Negative Consequences Of a Lower Real Estate Commission
When trying to sell your house, you naturally want to walk away with as much money as possible. Who wouldn’t?
But it is essential to understand that in real estate, you get what you pay for, just like everything else.
The more your discount broker shorts the buyer’s agent on your home sale, the less likely that agent will want to show their client your home.
You are creating ill will in the pool of buyer’s agents, which can have disastrous effects on your home sale.
Worst of all, you may not even be aware that any of this is going on. You may wonder why no one is coming to look at your house.
The discount broker that looks so appealing initially may not be the best choice if you want to sell your home – especially if you want to sell within a reasonable time frame and for a price, you can be happy with.
Every potential buyer that is directed away from your home is a potential sale that is lost. Homes listed on the market can also develop a negative reputation, one that will be picked up on by all the Realtors and buyers in the area.
If your home develops a negative stigma, you may wait months before its sells. You may also have to take far less than you initially expected.
This is why we all mention that overpricing leads to extended days on the market, which can crush your ability to get top dollar for your home.
Don’t Discount The Buyer’s Agent
Take it from your agent if you want to save money by having a lower real estate agent commission. Keep the buyer’s agent fee at what is typical for your location.
You never want to disincentivize the buyer’s agent. Ensure when you sign an exclusive right-to-sell contract, the lower commission comes from the listing agent.
You’re Not Saving Money With a Lower Real Estate Commission
Many sellers fail to understand that you are not really saving money when you have a lower real estate commission than all of the other homes on the market you are competing with.
Here is an example of what I mean.
Your home is going on the market for $500,000. You have interviewed three agents, and two tell you they charge a 5% commission.
You ask these two agents if they will lower the commission, and they say no. The third agent says they will only charge you 4%.
In your mind, you probably think I just saved myself $5000 in commission.
Here is why you are wrong. The agent you have listed the home with only offers a 2% fee to the buyer’s agent.
Remember that for every home you compete against in your market, the buyer’s agent is getting 2.5%.
Which house do you think a buyer’s agent does not want to sell? Ding, ding, ding – if you said yours, you are 100 percent correct.
It may not seem like much, but a difference of $2500 to an agent can be significant.
You may be thinking, well, who cares? Everyone finds their home on the internet today in the popular home-buying websites. Buyers are still going to call an agent to show them the house.
Fair enough, but you miss what happens with some agents when they see you have offered what they perceive to be a discount real estate commission.
Suddenly, your home will have problems you never knew existed.
What Happens With Lower Real Estate Commission?
The agent will do everything under the sun to convince a buyer your home is not suitable for them.
If you think this is awful and should never happen, I agree with you completely. Unfortunately, it does happen, and there is nothing you can do about it! So when you think you are saving $5000, you are not.
You are making it appealing for every buyer’s agent NOT to want to sell your home.
When it comes time to offer advice on what to offer on your home, what do you think these agents are telling their buyers? If you guessed your home is priced too high, you should hear those bells ringing again.
Folks, if you want to sell your home for the most money, you want buyers’ agents to be thrilled they are selling your property.
Giving them a bad taste in their mouth is not a good idea.
Buyer Agent Code of Ethics
You may think it is not right that an agent should be able to steer a buyer away from a property because they are unhappy about a low real estate commission.
Shouldn’t a buyer’s agent look out for their client’s interests no matter what?
Should agents not put their pocketbooks before their client’s interests?
The answer to these questions, of course, is YES. Realtors should always put their client’s interests ahead of their own.
Exceptional Realtors follow the real estate code of ethics. Remember, however, we are talking about the real world here.
One of the things a good buyer’s agent should do right up front when meeting a client explains how they get paid. Buyers need to understand that real estate agents generally do not get paid a salary.
They should understand that an agent makes no money unless they make a sale.
Lower Real Estate Commission Should Be Explained
Loyalty from a client is not something an agent should assume or ever take for granted. Clients need to be completely aware of how our business works.
It is too easy for a buyer to look at houses with an agent one weekend and then meet with someone else the following weekend. With proper education, this should not happen unless you have provided poor service.
Explaining how the business works should also lead to a discussion on how you get paid. Good Real Estate agents should point out what they expect to get paid for providing services in a sale.
In other words, an agent should set a minimum percentage they expect to get paid.
A Discussion on Low Commission Listings Should Take Place
They should discuss with a buyer upfront that if a seller offers less than the minimum percentage, they expect the buyer to make up the difference. This should be done in what is known as a buyer’s agent contract.
The agent and buyer client should be on the same page from day one, with each having a certain expectation. The real estate agent finds the buyer their dream home, and the agent gets compensated with what they feel is appropriate.
This way, there is never a thought to not putting the buyer’s client’s interest first, and the agent also gets paid what they feel is an appropriate commission.
The buyer doesn’t have to pay the difference if that amount is deducted from what they are willing to offer on the home. This creates a win-win for both the buyer and the agent.
Consumers should also understand there are distinct skill differences between real estate agents who work with buyers and sellers. Some real estate agents are set up to work with sellers, and others enjoy working with buyers.
The interview process is critical when selling a home or buying a home. You want an agent that has a particular skill set.
For example, when selling your home, do you really want an agent focused on aggressively marketing your home or always out on the road showing homes? It is tough to do both well!
There is a significant difference between a listing agent vs. a selling agent.
The best listing agents have a real estate marketing plan to sell a home. The best buyer’s agents know communities and neighborhoods incredibly well.
Low Commission Realtors Rarely Are The Best Agents
How many exceptional doctors do you know that discount their rates? How about the local lawyer? The Dentist?
If anyone of these people is worth hiring, I am sure they don’t have a placard on the door saying they are offering discounts. Why? They don’t have to!
Those outstanding in their field DO NOT DISCOUNT because there is no need to do so! People want to work with them because of their fantastic skill sets and abilities.
When you hire a real estate agent willing to discount their fees at the drop of a hat, do you think you are getting one of the best?
The answer is NO! Over the years, I have seen many consumers not give a second thought to the real estate agent they hire.
These people think we all do the same things to sell homes. How wrong they are!
Sometimes it is so clear why there is so much dissatisfaction within the industry.
It’s a Double Mistake Choosing a Low Commission Realtor
More often than not, when you choose an agent because of their willingness to discount a commission, you have not made one mistake but two.
You have a lousy agent and a commission rate that will turn off those that should be your greatest allies. The third common denominator with this agent is someone who will not think twice about overpricing your home.
This, of course, is a recipe for disaster. So when you ask yourself whether choosing a top-producing Realtor matter, the answer is a resounding yes!
Being a real estate agent for thirty-seven years, I can tell you some outstanding agents exist. However, some should not be in our industry.
Lousy real estate agents are easy to spot – they do almost anything to land a listing, whether agreeing to overpricing or getting paid less than the going rate. This is not what you want!
Real Estate Agents May Steer Clear Of Your Home
The problem of discounted commissions has become widespread enough to make the news, with real estate agents discussing how some listings are avoided due to a lousy commission split.
Discussions between Realtors and interviews with them have exposed the brutal realities of the real estate industry.
There are always good and bad examples in every industry, and real estate is no exception. Judging from what some Realtors say, when the commission split is bad enough, some agents will avoid a home altogether.
They won’t go out of their way to show the home to their clients.
As previously mentioned, other Realtors may show the home. Still, they will talk poorly about the house, playing up the negative aspects of the property in hopes of encouraging their client to look elsewhere – at homes where they can expect a decent commission.
A lot of work goes into being a good Realtor. A quality agent can easily spend 50 to 60 hours a week serving their clients.
At the same time, the numbers provided above may not seem drastic at first glance, that half a percentage point comes out to 20% of the total commission for the agent, a commission that may be split among several agents.
More importantly, the figures listed above were just for demonstration purposes. Often the split can be even more drastically skewed, leaving the agent working for half pay or worse.
Ideally, all agents should show all houses available. But in the real world, people work, so they get paid. There may be several other houses that will work just as well for the Realtor’s client.
Why choose the one that pays so little? So the next time you wonder whether a real estate commission matters, you will hopefully understand it does!
Low Commission Realtor Near Me
Are you still not convinced that hiring lower-commission real estate agents are a mistake? If you want a lower-commission Realtor, head to Google and search.
Low commission Realtor near me should provide a few results. Another popular search is a 1 percent commission Realtor near me.
The results served should be the discount brokerages in the area. Depending on your location, there may not be many.
Final Thoughts on Lower Real Estate Commissions
Do real estate agents get paid well – yes, they sure do! Real Estate can be a very lucrative career if you are good at it.
The problem with the real estate industry as a whole is the low barrier to entry.
Take a test, pass it, and get hired – you are now a real estate agent.
It should not be this easy to get a real estate license when representing many people’s most considerable assets. This is the reality.
Many fail to understand that the average real estate agent makes a poverty-level income. This is because 94% of the business is done by 6% of the agents.
You have two ends of the spectrum and not so much in between. Everyone knows a Realtor because there are so many of us!
The commission structure as it now exists has been in place for decades. Many say it needs a complete overhaul. While some real estate agents may disagree, there is not much difference in work selling a $300,000 home vs. a $600,000 home.
Yet, the more expensive home will often pay double the commission. This is not chump change.
It is no wonder why so many explore getting a discount. The reality, however, is that you will be doing yourself a disservice if you try to beat the system that is currently in place.
Final Thoughts on Lower Real Estate Commission
If you sell your home, make sure you offer a commission structure in line with your competition. With a lower real estate commission, you run the real risk of losing money!
If you are considering selling your home in the Metrowest, Massachusetts area, I will welcome the opportunity to interview. Reach out for exceptional real estate expertise.
More Helpful Home Selling Articles:
- Exceptional home-selling tips from multiple real estate bloggers via Sell My Home In Metrowest, Massachusetts.
- How to interview a real estate agent when selling a home – get some helpful guidance on how to go about picking the right real estate agent to sell your home via The Rochester Real Estate Blog.
- Hiring a discount Realtor is one of the top home seller mistakes when selling a home. Learn why picking the right Realtor to sell your home is crucial via Maximum Real Estate Exposure.
Use these additional resources to make sound business decisions when selling your home.
About the author: Bill Gassett, a nationally recognized leader in his field, provided the above information on lower real estate commissions. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of many Metrowest towns for the last 37+ Years.
Are you thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!
I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.
