There are a lot of agents who advertise their services at a low discount rate. I see signs all over town. “Sell your house at 2%”.
But, there are a few things that you need to consider before hiring such an agent.
1. That fee is ONLY from the listing side! That’s right, there’s a little fine print that they don’t normally include in those ads. That fine print is that the 2% commission is only ONE side of the deal.
When a house is sold, the real estate agent gets a certain percentage of the sale price. BUT they also have to pay the sales agent (who brought the buyer in).
They will almost NEVER give the sales agent less than 2.5%. That’s because a buyer’s agent will almost NEVER be willing to settle for less. I know you wouldn’t!
So now that 2% has become 4.5%. Yes, it is less than the traditional 6%. But is it worth it considering what I am going to tell you next?
2. Discount commissions mean discount service! You may not know this, but the costs that a real estate agent has to pay to run their business are enormous. So when an agent reduces her salary, he has to reduce her effectiveness in business.
On average, it costs an agent at least $500 per month just to BE an agent. There are desk fees, association fees, license fees, continuing education fees (required), MLS fees, E&O insurance fees, and the list goes on and on.
Let’s simplify the math. If an agent sells a $100,000 home with a 2% commission, you make $2,000 (but you spend $4,500 because of the 2.5% extra for the buyer’s agent).
WAIT GOAL! Your broker normally takes about half of that. So now they’re only making $1000. And Uncle Sam wants his cut too.
So how does a discount broker stay afloat? They get as many listings as they can and do NOTHING with them. They’ll put them in the MLS and then they’ll wait and wait for the phone to ring.
They can’t afford to do any real marketing for you. It’s simple math. So a low amount of commission gets a low amount of service.
3. If they discount their own value, they will also discount their value! An agent who is willing to accept such a low commission to get your business is also willing to accept such a low offer on your home to get some kind of payment.
Think about it. How good are they really at negotiating and getting what they deserve if they can’t even get what they deserve? They are willing to lower their price without even being asked! How is that type of negotiation going to help you in the sale of your house?
4. Training… Do they really get enough? For every sale they make (if they make one) they give half of that $1,000 check to their broker. Usually a good agent can close 2 houses a month. So that’s $1,000 a month that the agent brings to his broker. Is that enough for the broker to provide training?
The expenses that an agent has to pay are high enough. But imagine what the broker pays! Just as the agent has to reduce his level of service, the broker must reduce his level of training.
You end up with an agent with little training and no reason to do anything but list your house in MLS and wait. You get what you pay for!
5. Compare them to an agent who does the traditional 6%. That 6% covers ALL sides of the transaction. The agent who does what they are worth will be able to provide a 3% cut of the sale price to the buyers agent. Then more agents will want to show your house.
They will have the cash flow to advertise your home in many more ways than simply listing it on the MLS. They can afford to advertise to YOU instead of their “2%” fee.
They don’t settle for less than they’re worth and they know how to bargain for the best. Therefore, you can be confident in their ability to get you the best price for your home. If they see a low offer, they’ll tell you it’s too low. They will not “take what they can”.
And, the simple fact that they bring more income to your broker means that your broker has more ability to spend money on your training. So they can guide you through the legal issues you wouldn’t even know could be a problem!
Bonuses: How much money do you really think you could save by hiring a discount real estate agent? In total, you spend a 4.5% MINIMUM on their commission. That’s 1.5% less than an agent charging the full 6%.
So let’s break it down again with that $100,000 sale. You could pay $4,500 with a discount agent and deal with all that drama. Or you could pay $6,000 with an agent who can afford to work for you.
That’s only a difference of $1,500. But it makes a world of difference when it comes to the biggest financial investment of your life!