6% Commission Too Much?

I saw this post on Craigslist and decided to blog a bit about it

> 6% is too much < tonka4x4> 10/02 14:30:17

I think 6% is too much, I think it should be on a sliding scale, 4% if the house sells in the first couple of weeks and if after the 1st month move to 4.5%, then if it’s 2 months maybe 5%, but I think that’s enough. 6% is crazy!

I’m a REALTOR and I also agree that 6% is too much for many properties.  However here is the dilema.  Most truly experienced agents who have had a fair degree of success over their career of 5+ years in real estate have enough business coming in that demanding 6% to some extent makes their job manageable.  If they took listings at a lower commission they would have to hire more staff and ultimately may not make as much as an agent in the short run in favor of an economic model which would pay with larger marketshare and economies of scale.  In my opinion this is the achilies heal of traditional real estate.

The second part of this dilemma is the newer agent who wants to get his/her feet wet with listings will often be willing to discount the commission, however newer agents are more likely to get the pricing wrong on the home, not be strong negotiators not having been involved in many transactions yet, and ultimately will in all likelihood cost the home seller more then the 1 or 2% savings on the commission rates vs the recognized expert. 

In most cases the Home Seller and the agent won’t even notice the actual difference between a long time professional and a new professional in terms of pricing and marketing, but this challenge is real.

A third scenario is the “Limited Service Brokers” who charge less to the home seller who uses their services and claims that the sellers saved “$X” by choosing them.

This also is a misnomer.  The national franchise which I currently hang my license with recently completed a nationwide study comparing selling prices, time on market and expiration of listings of “Limited Service Brokers” vs “Full Service”.  What came out of the study was that “Limited Service Brokered” properties sold for less money (less net for the seller).  The ones that did ultimately sell took on average 20% longer to sell and were 36% more likely to expire without a completed transaction.  Here we could ask the question, “What about the Savings.”  In reality the savings is an illusion in most cases.  Sure there will be poster children for “Limited Service Brokers” of clients who sold in 1 day at a price above what they listed it at, but these poster children are just that, they are the anomaly.  They are the sizzle of using a limited service broker.

One last item worth noting is that whether overt or not, most “Full Service Agents” are not excited to show “Limited Service Broker” listed product.  If they do show these properties they are properties of last resort once the inventory of “Full Service” product has been shown to prospective clients.  This ultimately leads to the financial dilemas that home sellers experience with the Limited Service Brokers.

What our team has been studying is a Flexible Commission model.  Our research has shown that by modifying the commission based on the outcome, consumers ultimately would receive better perceived and real value for services provided.  Ultimately if the buyer of the property comes from sphere of the home seller, or from a call on an ad or sign call there is no reason why the home seller should pay a full commission.  In the case that the seller finds the buyer him or herself maybe they shouldn’t be obligated to pay a commission at all since in reality the marketing we do as agents didn’t ultimately result in the sale.  We refer to our model as the 0,1,4,6 program which has structure for the seller to pay as little as 0 or 1% if the buyer works directly with the seller.  If any of our team (6 buyers agents) sell the property then the commission is 4% (essentially 1% on the list side) and if another member of the MLS sells the property then the fee might be 6% depending on the property etc…

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